Consolidated Financial
Statements
31 December 2023
ConsolidatedFinancialStatements
31December2023
Kvikabankihf.Katrínartún2105ReykjavíkIcelandReg.no.540502‐2930
Kvika banki hf.
Table of Contents
Page
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54
59
63
Appendix - unaudited
79
85
Independent Auditor's Report .......................................................................................................
Notes to the Consolidated Financial Statements ...........................................................................
Consolidated Income Statement ....................................................................................................
Endorsement and Statement by the Board of Directors and the CEO ...........................................
Kvika highlights ...............................................................................................................................
Consolidated Statement of Comprehensive Income Comprehensive Income ............................
EU Taxonomy Regulation ...............................................................................................................
Consolidated Statement of Financial Position ...............................................................................
Consolidated Statement of Changes in Equity ...............................................................................
Statement on the Corporate Governance of Kvika banki hf. 2023 ................................................
- General information ....................................................................................................................
Consolidated Statement of Cash Flows ..........................................................................................
- Significant accounting policies ....................................................................................................
- Risk management ........................................................................................................................
- Financial assets and financial liabilities .......................................................................................
- Segment information ...................................................................................................................
- Income statement .......................................................................................................................
- Statement of Financial Position ...................................................................................................
- Other information .......................................................................................................................
Consolidated Financial Statements 31 December 2023
Kvika highlights
31.12.2023
Kvika
Kvika is a specialized financial institution strategically
positioned to increase competition and transform
financial services in Iceland. Kvika provides businesses,
investors, and individuals with investment banking,
insurance, asset management, payment, and banking
services. The Bank is listed on Nasdaq Iceland.
Kvika operates in four business segments, Commercial
banking and Corporate Banking & Capital Markets as
well as Asset Management and UK operations through
subsidiaries Kvika Asset Management and Kvika
Securities Ltd. Kvika’s insurance segment, operated
through the subsidiary TM tryggingar hf., is currently in
a divestment process.
Kvika operates several brands that are highly focused
and excel in their field. The main brands are Kvika, Kvika
Asset Management, Auður, Aur, Lykill, Netgíró, and
Straumur, as well as Ortus Secured Finance in the UK.
Diversified operations
Revenues by segment / 12M 2023
Key figures
ISK m. 12M 2023 12M 2022
Net operating income 14,852 14,479
Profit before taxes 3,009 4,803
Profit before taxes incl.TM 5,245 5,621
RoTE 12.1% 13.1%
31.12.2023 31.12.2022
Total Assets 335,397 299,670
Loans to customers 136,323 107,139
Deposits 133,773 112,245
LCR 247% 320%
NSFR 141% 140%
Group Solvency 1.25 1.36
Corporate Governance Reitun ESG score Stable
Q4 22 Q1 23 Q2 23 Q3 23 Q4 23
3.4
3.5
4.3
3.0
4.0
Net operating income
ISK bn.
Loans to customers
ISK bn.
Total capital ratio
(%)
LCR ratio
(%)
0
20
40
60
80
100
120
140
95.5%
Q4 22
92.3%
Q1 23
91.5%
Q2 23
96.0%
Q3 23
101.9%
Q4 23
107
110
119
124
136
Loans to deposits
0
5
10
15
20
25
30
35
40
45
50
0
5
10
15
20
25
20.9%
Q4 22
20.8%
Q1 23
20.9%
Q2 23
20.4%
Q3 23
19.6%
Q4 23
23.5%
23.6%
23.1%
22.7%
22.6%
CET1
0
50
100
150
200
250
300
350
0
50
100
150
200
250
300
350
400
140%
Q4 22
144%
Q1 23
150%
Q2 23
145%
Q3 23
141%
Q4 23
320%
327%
390%
301%
247%
NSFR
34.1%
38.8%
17.6%
9.5%
Commercial Banking
Corporate Banking & Capital Markets
Asset Management
UK
Following the classification of TM as a disposal group held for sale, the Group reports income from its insurance operations in a single line in the
consolidated income statement as profit after tax from discontinued operations. The comparative figures from 2022 have been restated
Kvika banki hf.
Endorsement and Statement
by the Board of Directors and the CEO
About the Bank
Operations during the year 2023
Financial position
Change of CEO
TM Insurance to be sold or listed
These are the Consolidated Financial Statements of Kvika banki hf. ("Kvika" or the "Bank") and its subsidiaries (together the "Group") for the year 2023.
Kvika operates as well as a house of brands that are highly focused and excel in their field. The main brands are Kvika, Kvika Asset Management, Auður, Aur,
Lykill, Netgíró, and Straumur, as well as Ortus Secured Finance in the UK.
Kvika is a specialized financial institution strategically positioned to increase competition and transform financial services in Iceland. Operating without a
branch network, Kvika provides businesses, investors, and individuals with investment banking, insurance, asset management, payment, and banking
services. The Bank is listed on the main list of Nasdaq OMX Iceland.
Kvika operates in four business segments, two which are operated under the Kvika Bank brand, Commercial banking, and Corporate Banking and Capital
Markets, and two in own-brand subsidiaries, Kvika Asset Management and Kvika Securities Ltd., the Group's operations in the UK. The insurance segment,
operated through the subsidiary TM tryggingar hf. ("TM") has been discontinued as TM is currently in a sales process.
Profit before taxes for the year amounted to ISK 5,245 million (2022: ISK 5,621 million), corresponding to an annualised 12.1% return on weighted tangible
equity, based on the tangible equity position at the beginning of the year adjusted for changes in share capital and transactions with treasury shares during
the period. Profit before taxes is composed of the pre-tax profit from both the Group's continuing and discontinued operations.
The figures in the consolidated income statement for the year 2022 do not include the operations of Ortus Secured Finance Ltd. ("Ortus") for January and
February 2022, as the business combination took place at the end of February. Reference is made to the Consolidated Financial Statements for 2022 for
further information on the business combination.
According to the Consolidated Statement of Financial Position, equity at year-end 2023 amounted to ISK 81,958 million (31.12.2022: ISK 81,089 million), and
total assets amounted to ISK 335,397 million (31.12.2022: ISK 299,670 million).
The Group's statement of financial position grew by ISK 35.7 billion or 11.9% during the year 2023. Loans to customers grew by ISK 29.2 billion or 27.3%
during the year. Liquid assets amounted to ISK 109 billion at year-end 2023, or 33% of total assets.
In early October 2023, the Bank announced that following a strategic review at Kvika, the BOD has decided to initiate a process for selling or listing of its
insurance subsidiary TM. The decision is in line with the Bank's vision, where emphasis is placed on simplifying the Group's operations and strengthening
Kvika's traditional banking activities, in accordance with the Bank's goal to increase competition and simplify its customers' finances. Following the
divestment of TM, Kvika's main operations will be focused on commercial- and investment banking, along with asset management. Kvika's capital base is
expected to grow significantly following TM's divestment, enabling the Bank to pursue internal growth opportunities across Kvika's business segments.
Increased capital will, among other things, enable the Bank to strengthen its market position, in both retail and corporate lending, and increase the risk
diversification of its loan book. Furthermore, it is expected that a considerable part of the sales proceeds will be paid to shareholders in the form of
dividends and/or buyback of own shares.
On 20 August 2023, the Bank announced that the Board of Directors ("BOD") of Kvika and Marinó Örn Tryggvason had reached an agreement on the terms
of the CEO's retirement. The CEO initiated discussions regarding retirement. The retirement became effective on the aforementioned date. The BOD of
Kvika has engaged Ármann Þorvaldsson as the Bank's CEO, effective as of that same date. Ármann previously held the position of CEO of Kvika in 2017-2019
and was deputy CEO between 2019-2022.
The Group's net operating income during the year was ISK 14,852 million (2022: ISK 14,479 million). Net interest income amounted to ISK 8,021 million
(2022: ISK 7,085 million). Net fee income amounted to ISK 5,916 million (2022: ISK 6,414 million). Other operating income amounted to ISK 915 million
(2022: ISK 980 million). Administrative expenses during the year amounted to ISK 10,785 million (2022: ISK 9,092 million). During the year, the Group had a
net impairment charge of ISK 1,027 million (2022: ISK 567 million).
In the beginning of December 2023 Kvika concluded an offering of Tier-2 subordinated bonds in a new series denominated in Icelandic króna for ISK 2,000
million, the proceeds of the Tier-2 subordinated note offering will be used to strengthen the capital base of the Bank and to repay subordinated notes that
are redeemable in 2024.
In the beginning of May 2023 Kvika concluded a sale of NOK 550 million and SEK 275 million floating rate bonds that have a 3-year maturity and were priced
at a spread of 410bps over 3-month NIBOR and STIBOR.
Kvika finalised its first green international bond issue in November 2023 when Kvika concluded a sale of SEK 500 million green bonds that were issued at a
spread of 400 bps over 3-month STIBOR. The green bonds are the first green issuance of an Icelandic bank in Swedish krona. Kvika also issued additional
NOK bonds from the outstanding issuance that was issued in May 2023, increasing the size of NOK issuance to NOK 800 million. The bonds, which have a
maturity in May 2026, were sold at a price equivalent to a 380 bps spread over NIBOR.
Consolidated Financial Statements 31 December 2023 2
Kvika banki hf.
Endorsement and Statement
by the Board of Directors and the CEO
Operational outlook
Economic outlook
Capital adequacy and dividends
In accordance with IFRS, at year-end 2023 the decision was made to classify TM and the Group's insurance operations as a disposal group held for sale and
as discontinued operations. This has a number of effects on the Consolidated Financial Statements, reference is made to note 4 for further information.
In part due to the strong growth and positive output gap in the economy, inflation in Iceland remained stubbornly high at 7.7% at year end, although it has
since moderated to 6.7%. Persistent inflation has led the Central Bank of Iceland to hike rates to 9.25% in an effort to bring inflation down.
Inflation is forecast to average 5.7% in 2024, before gradually slowing to below 3% on a three-year horizon. A key uncertainty for the inflation outlook
remains the outcome of collective wage agreements currently being negotiated between unions and employers. Iceland’s inverted yield curve suggests that
markets are pricing in policy rate cuts in the year to come as disinflation continues.
The Group's solvency ratio at 31.12.2023 was 1.25 (31.12.2022: 1.36) with a regulatory minimum requirement of 1.0.
The Bank's 2023 Annual General Meeting ("AGM") approved a motion from the BOD permitting the Bank to purchase up to 10% of own shares subject to
regulatory approvals. This authorisation applies until the next annual general meeting in 2024. In June, the BOD decided to exercise a part of that
authorisation and established a buy‐back programme to carry out the purchase of shares for a total consideration amount of ISK 1 billion but for no higher
nominal amount than 60,000,000 shares. In September 2023, the Bank announced that the buy-back programme had been completed, as shares for ISK 1
billion had been bought.
The policy tightening has already led to moderation in domestic demand as household consumption and business investment slowed throughout 2023. The
Central Bank of Iceland expects growth in 2024 to slow further to 2.6% as unemployment rises modestly to 4.8%, largely due to the impact of tighter
monetary policy. Growth is nevertheless expected to remain stronger than most peers’ due to a combination of ongoing strength in tourism and a resilient
private sector, and remain in the 2.5-3.0% range in the medium term.
The volcanic activity around Grindavík has not had material effect on the financial result of Kvika or any of its subsidiaries. Kvika has limited lending
exposure to companies and individuals in Grindavík. Kvika‘s insurance subsidiary TM does insure properties in the area but damages caused directly or
indirectly by the volcanic activity fall to a very large degree outside the scope of TM’s insurance coverage. Natural catastrophe insurance of Iceland does
cover losses related to volcanic activity and other natural disasters, and the Icelandic authorities have also introduced measures to assist households in the
area by purchasing residential property in the area.
The Icelandic economy continues to grow well in excess of most of its European peers, with GDP growing 4.2% in the first three quarters of 2023. The
economy is supported by its low energy import dependency ratio, which has sheltered Iceland from gyrations in global commodity markets, as well as rapid
growth in its tourism sector.
The outlook for Kvika in 2024 is positive, underpinned by Kvika’s multiple operating segments which provide a diversified source of income for the group.
The Group’s financial position remains strong, with robust liquidity and capital buffers well above regulatory requirements. Despite moderating growth in
the Icelandic economy, fundamentals remain broadly supportive relative to peer economies as further described in the Economic Outlook. Market pricing
suggests rates are likely to come off their peak in 2024, which we expect to be a further tailwind for the Group’s operations. Additionally, the UK economy
seems to have dodged a widely expected recession in 2023, as growth is expected to pick up modestly in 2024 amid rapid disinflation and declining policy
rates. This is likely to affect Kvika’s UK operations favourably, where lower policy rates are expected to contribute to widening interest margins after a
period of compression since 2022.
The BOD propose that no dividend will be paid in the year 2024 on 2023 operations. The BOD intends, through the purchase of own shares, to meet the
Bank's dividend policy, which states that the aim is for shareholders to be returned an annual dividend of at least 25% of last year's profit after taxes,
whether in the form of dividends or through the purchase of own shares. The BOD has not ruled out that it might call to a meeting of shareholders later in
the year 2024 to discuss potential dividend payments if the conditions arise, e.g. following the sale of TM.
Kvika‘s total capital requirement at 31.12.2023, taking into account all capital buffers, amounted to 18.7%. Kvika's capital adequacy ratio was 22.6% at the
end of December 2023 (31.12.2022: 23.5%). Kvika’s CET1 requirement was 13.5% compared to a CET1 ratio of 19.6% at the end of December 2023.
The 2023 AGM also approved a motion from the BOD to, subject to approval from the Financial Supervisory Authority of the Central Bank of Iceland,
decrease the share capital of the Bank by 147,871,265 shares by cancelling treasury shares held by the Bank. Furthermore, the 2023 AGM also approved a
motion from the BOD to pay a dividend to shareholders of 0.4 ISK per share or ISK 1,912 million, taking into account treasury shares held by the Group. In
April 2023, the share capital reduction and the dividend payment were carried out.
In December 2023 Kvika announced that it had received non-binding offers for share capital of TM, both for all outstanding shares and part of the shares.
The BOD of Kvika reviewed and evaluated the offers received and subsequently decided to invite four parties to continue in the sales process and provide
them with access to vendor due diligence reports and further information. It is anticipated that the sale or listing of TM will be completed in the second or
third quarter of 2024. It should however be noted that no assurance can be made that the sales process will result in binding offers for TM.
Consolidated Financial Statements 31 December 2023 3
Kvika banki hf.
Endorsement and Statement
by the Board of Directors and the CEO
Share capital and shareholders
Shareholder 31.12.2023 31.12.2022
9.56% 9.13%
7.89% 7.64%
7.01% 6.59%
6.00% 4.80%
5.43% 4.66%
1.92% 3.41%
3.54% 3.07%
2.55% 2.43%
2.30% 2.23%
1.45% 0.01%
47.65% 43.97%
Risk management
Corporate governance
The Bank's issued share capital amounted to ISK 4,781 million as at 31 December 2023 (31.12.2022: ISK 4,929 million). At the end of the year the Bank held
ISK 59 million treasury shares (31.12.2022: ISK 148 million). The shares were acquired through a share buy-back programme. The net change in the Bank's
issued share capital amounted to a reduction in nominal value of ISK 89 million during the year (ISK 22 million increase during the year 2022).
The Bank had 2,876 shareholders at year-end 2023 (2022: 2,992), none of which held more than 10% of shares in the Bank (2022: 0). The ten largest
shareholders are as follows:
Stapi lífeyrissjóður ..............................................................................................................................................
Lífsverk lífeyrissjóður ..........................................................................................................................................
Almenni lífeyrissjóðurinn ...................................................................................................................................
Fossar fjárfestingarbanki hf. ...............................................................................................................................
Further information about the shareholders of the Bank is provided in note 69.
The objective of risk management is to promote a good and efficient culture of risk awareness within the Group and to increase the understanding of
employees and management on the Group's risk taking, in addition to an assessment process related to risk and capital position. An emphasis is placed on
being up to speed on the latest developments and adoption of rules related to risk management, such as regarding capital- and liquidity management. The
Group faces various risks associated with its operations as a financial conglomerate that arise from its day-to-day operations. Active risk management
entails analysing risk, measuring it and taking actions to limit it, as well as monitoring risk factors across the Group. The Group's risk management and main
operations are described in the notes accompanying the Consolidated Financial Statements. Refer to notes 45-60 on the analysis of exposure to various
types of risk.
Kvika is obliged to observe recognised corporate governance guidelines, pursuant to Par. 7 of Article 54 of Act No. 161/2002, on Financial Undertakings. The
Bank complies with chapter VII of Act No. 161/2002 and in most respects with the Guidelines on Corporate Governance issued jointly in February 2021 by
the Chamber of Commerce, Confederation of Icelandic Enterprise (SA) and Nasdaq Iceland. The only deviation from the guidelines is that Kvika has not
appointed a nomination committee, but it is expected that a proposal for the appointment of a nomination committee will be submitted to the next annual
general meeting as further discussed in an appendix to these financial statements, which contains a corporate governance statement. Kvika has twice been
recognized as a company which has achieved excellence in corporate governance following a formal assessment based on the Icelandic Guidelines on
Corporate Governance issued by the Icelandic Chamber of Commerce, Confederation of Icelandic Enterprise (SA) and Nasdaq Iceland, first in 2018 and again
in 2021. The recognition applies for three years at a time unless there have been significant changes to the BOD or the ownership of the Bank. The BOD
intends to have such an assessment carried out on a regular basis and maintain the aforementioned recognition. Additionally, Kvika complies with
Guidelines of the European Banking Authority (EBA) on Internal Governance (EBA/GL/2021/05), cf. Art. 15 of Regulation of the European Parliament and of
the Council no. 1093/2010, which was incorporated into Icelandic law with Act no. 24/2017 on European Supervisory System on the Financial Market.
In accordance with the Bank´s articles of association, five members and two alternate members are elected to the BOD each year at the annual general
meeting. The eligibility of members of the BOD is subject to statutory law. It is the Bank´s policy concerning election of the BOD that the BOD collectively has
sufficient knowledge, competency and experience to understand the Bank´s operations, including the main risk factors. The ratio of each gender of
members of the BOD and alternate members shall be at least 40%. The election of BOD members and their eligibility is furthermore governed by the
provisions of the Act on Public Limited Liability Companies No. 2/1995 and the Act on Financial Undertakings No. 161/2002.
The Bank´s articles of association may be amended at lawfully convened shareholders´ meetings, provided that the notice of the meeting specifies that
proposals for such amendments are scheduled and outlines the main substance of the amendments. An amendment takes effect only if approved by at
least 2/3 of the votes cast and by shareholders controlling at least 2/3 of the shares represented at the meeting. However, the provisions of the articles of
association regarding the voting rights of shareholders and equality among them cannot be amended except with the consent of all the shareholders who
are subject to the curtailment of rights, cf. paragraph 3 of Article 94 of the Act on Public Limited Liability Companies No. 2/1995.
The Board determines compensation for the CEO. The BOD emphasizes good corporate governance and adherence to accepted guidelines on corporate
governance. The Board has laid down comprehensive rules in which the authority of the Board is defined and its scope of work in conjunction with the CEO.
They address e.g. competence of Board members to participate in individual decisions, confidentiality and information disclosure between the CEO and the
Board. All Board members are independent of the Bank and its major shareholders and there are no executive directors on the Board. The Bank aims to
promote gender equality and two out of five board members are women.
The BOD has delegated certain tasks to three separate subcommittees, the Risk Committee, Audit Committee and Remuneration Committee. The
appointment of committee members shall always comply with currently applicable law. It is not permitted to appoint employees of the Bank to any
subcommittee. Members shall have the necessary experience and knowledge for each committee's tasks according to applicable laws and rules. Each
committee has incorporated procedural rules which have been confirmed by the BOD.
Gildi - lífeyrissjóður .............................................................................................................................................
Arion banki hf. ....................................................................................................................................................
Lífeyrissjóður verzlunarmanna ...........................................................................................................................
Lífeyrissjóður starfsmanna ríkisins A-deild ........................................................................................................
Stoðir hf. .............................................................................................................................................................
Birta lífeyrissjóður ..............................................................................................................................................
Consolidated Financial Statements 31 December 2023 4
Kvika banki hf.
Endorsement and Statement
by the Board of Directors and the CEO
The BOD determines the risk policy and risk appetite of the Group with rules on risk management of the financial conglomerate of Kvika, which define risk
factors in Kvika’s operations, including their nature and acceptable volume.
The CEO reports to the Board and verifies the effectiveness of internal controls and risk management in the Consolidated Financial Statements. Internal
controls and risk management applied in the preparation of the Consolidated Financial Statements are organised with a view to preventing any significant
deficiencies in the accounting process. Kvika’s BOD and control units regularly verify the effectiveness of internal controls and risk management.
The Risk Committee has an advisory and supervisory role for the Bank’s BOD, among other things, in determining its risk policy and risk appetite. The Audit
Committee is intended to play an advisory and supervisory role for the Bank’s BOD by, among other things, ensuring the quality of financial statements and
other financial information from the Bank and the independence of its auditors. The Audit Committee supervises accounting procedures and the
effectiveness of internal controls as well as internal and external auditing. The Remuneration Committee has an advisory and monitoring role for the BOD in
relation to remuneration at the company and its group and that they support its goals and interests.
The main aspects of internal and external control and the Bank’s management in connection with the accounting process are described in detail in the
Statement on the Corporate Governance of Kvika.
Further information about the Bank's corporate governance can be found in an appendix to these financial statements which contains a corporate
governance statement. A copy of the statement is available on the Bank's website, www.kvika.is.
Sustainability and non-financial reporting
Kvika's strategy is to foster competition in financial services and simplify customers' finances and Kvika's values are long-term thinking, simplicity and
courage. One of the Group's guiding principles is to be a responsible participant in society and in 2022 a new sustainability policy was issued that applies to
Kvika and the Group, based on Kvika's ownership policy for important subsidiaries. Subsequently relevant supporting policies were formulated or updated.
Examples of supporting policies include policies on education and professional development, gender equality, health and human resources, as well as a
response plan against bullying, harassment and violence. A human rights policy has not been considered necessary, given that the Group operates for the
most part in Iceland, where there is a clear legal framework regarding human rights matters.
In 2023, changes were made to the organisational structure of sustainability matters in Kvika's operations. A special sustainability committee is in place and
is now composed of the CEO and managing directors of subsidiaries and divisions as well as the Director of Sustainability. The sustainability department
moved from the CEO's office and now operates under the Operations and Development division.
A new sustainability risk framework for the Group was defined in 2023 and approved by the Bank’s Board of Directors. Kvika Asset Management and TM
have now established sustainability risk policies in line with the sustainability risk framework, that are currently being implemented into processes within
each subsidiary. Assessment of sustainability risk relates to, among other things, responsible investments, lending and communication with suppliers.
Sustainability risk has also been introduced into the remuneration policy, in order to, among other things, meet new EU disclosure requirements related to
sustainability in financial services.
Kvika supports the United Nations Sustainable Development Goals, of which six have been prioritized: SDG 3 on good health and safety; SDG 4 on quality
education; SDG 5 on gender equality; SDG 9 on industry, innovations, and infrastructure; SDG 13 on climate action and SDG 17 on partnership for the goals.
Kvika manages the progress made on projects that relate to the SDGs.
Kvika seeks to reduce carbon emissions from its operations and uses a digital environmental management system to do so. In recent years, the Bank’s
operations have undergone considerable changes through mergers with and acquisitions of companies, which has had an impact on key environmental
indicators. Good progress has been made in sorting waste in 2023, but efforts are being made to gain a better overview of waste generation and to improve
waste measurement, with emphasis on automation of relevant processes. Scope 3 greenhouse gas emissions in 2023 were 434 tonnes of CO2, with the
largest share due to transport and business travel by employees.
There was a 108.36% increase in green commitments during the year, but a new green bond was issued at the end of the year, in Swedish krona. This was
the first green bond series from an Icelandic bank denominated in Swedish krona and was issued under Kvika's green financing framework.
Kvika is a member of the global collaboration initiative, PCAF (Partnership for Carbon Accounting Financials), an industry-led initiative to enable financial
institutions to consistently measure and disclose GHG emissions financed by their loans and investments. Kvika is also a member of the United Nations
Principles for Responsible Investment (UN PRI) and during the year submitted its first mandatory report to the organisation. A group of employees also
attended UN PRI courses on responsible investments. Kvika is one of the founding members of IcelandSIF, an organisation for responsible investments, and
is a member of Festa Centre for Sustainability and Kvika also supports Grænvangur, which is a co-operation forum between industry and government on
climate issues and green solutions. Furthermore, TM, a subsidiary of Kvika, is a member of the United Nations Principles for Sustainable Insurance (UN PSI).
Fintech solutions and automation play an important role in Kvika's operations and have a positive impact on the environment. Emphasis is placed on
innovation in product development and services and in the development of digital solutions, which offer both social and environmental benefits such as
time savings for customers, less paper and fewer car trips. New solutions in Kvika's product range and services to Kvika's customers have seen the light of
day during the year, for example the establishment of Straumur, the issuance of Aur's electronic credit cards and increased financial services.
The European Union (EU) has implemented legislation in line with the objectives of the EU Green Deal. New disclosure rules have been introduced with the
Corporate Sustainability Reporting Directive (CSRD), which will enter into force in Iceland in the foreseeable future, along with the Corporate Sustainability
Due Diligence Directive (CSDDD), which will impose requirements on companies to implement sustainability throughout their value chain. The Sustainability
Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation have already been implemented in Iceland when Act No. 25/2023 on Sustainable
Finance Disclosures entered into force on 1 June 2023.
Consolidated Financial Statements 31 December 2023 5
Kvika banki hf.
Endorsement and Statement
by the Board of Directors and the CEO
Statement by the Board of Directors and the CEO
Sigurður Hannesson, Chairman
Guðmundur Þórðarson, Deputy Chairman
Helga Kristín Auðunsdóttir
Ingunn Svala Leifsdóttir
Guðjón Reynisson
Chief Executive Officer
Ármann Þorvaldsson
Employees were offered to undergo a health assessment and 155 individuals signed up. This included a blood test, a survey of sleep habits, stress and
exercise levels. The Group's full-time employee turnover was 14.8% in 2023. The proportion of women in the company is 45% and the proportion of women
in senior and management positions within the Group is 35%.
Kvika complies with Article 66. d. of Act No. 3/2006 on Annual Accounts Act on non-financial disclosure. Along with this financial statement, Kvika publishes
a sustainability report for 2023 based on ESG indicators according to the ESG guidelines of Nasdaq (ESG Reporting Guide 2.0) and to a limited extent on GRI
indicators according to the standards of the Global Reporting Initiative (GRI). The report contains a section that is the Bank's impact and allocation report
according to Kvika's green financing framework. Deloitte provides a limited assurance opinion on Kvika's sustainability and non-financial disclosures for the
year 2023, as well as on the allocation of green funds according to Kvika´s green financing framework.
Extensive work took place during the year on the development of an ESG risk assessment model in line with SFDR's requirements. This entailed broadening
the scope of the ESG risk assessment which can now, for example, be projected onto a loan portfolio. Workshops were held during the year to discuss
responsible investment methodologies among employees of Kvika, Kvika Asset Management and TM.
Kvika has worked on implementing Act No. 25/2023 in the Group’s operations, and the Group is now required to publish information in accordance with
article 8 of the EU Taxonomy Regulation for the first time for the financial year 2023. The EU Taxonomy Regulation establishes a framework for a
classification scheme defining what constitutes an environmentally sustainable economic activity. In order to enforce the provisions of the Regulation,
analysis was carried out on which assets meet the technical criteria of the Regulation which then resulted in the green asset ratio (GAR). The green asset
ratio represents the Group's assets financing and investments in environmentally sustainable economic activities that are aligned with the EU Taxonomy.
The proportion of the Group's green asset ratio at year-end 2023 is 0%. One of the main reasons is that this is the first year that companies will publish
information according to the EU Taxonomy Regulation and therefore there is information missing, mainly from companies that disclose non-financial
information under the Act No. 3/2006 on Annual Accounts.
The consolidated financial statements of Kvika banki hf. for the year ended 31 December 2023 are electronically certificated by the Board of Directors and
the CEO.
The Bank has adopted a Group wide policy on measures against financial crime, internal rules for measures against conflicts of interest, rules on gifts,
rewards and incentive payments, as well as policies on reputational and conduct risk. There have also been implemented rules on segregation of duties,
rules on employees' own transactions and rules on the protection of whistle blowers. These and other rules and policies are established for the most part
on a consolidated basis and, along with the Bank's code of ethics, lay the foundation for Kvika's defence against corruption and bribery.
The above-mentioned rules and policies seek to prevent the operations of Kvika and the Bank's subsidiaries from being used for any economic and financial
crimes. The Bank conducts and regularly reviews a money laundering risk assessment of its operations and all business relationships. The system Lucinity,
which utilizes modern technology and artificial intelligence, is used to detect suspicious conduct.
Kvika awards a variety of grants that have a positive social impact, and the selection of projects reflects the six UN SDGs that have been adopted. In recent
years, support has been provided to UNICEF in Iceland; women and innovation with FrumkvöðlaAuður, and industrial studies and teacher training with
allocations from Kvika's Incentive Fund. Educational support is considered to be one of the best long-term investments for both societies and individuals.
The total amount of grants from the Kvika group in 2023 was ISK 87 million.
More information on Kvika´s sustainability and non-financial information can be found in the sustainability report that accompanies this financial statement
and is available on the bank's website www.kvika.is.
The Consolidated Financial Statements of Kvika banki hf. for the year 2023 have been prepared in accordance with International Financial Reporting
Standards as adopted by the EU, and additional requirements, as applicable, in the Act on Annual Accounts no. 3/2006, the Act on Financial Undertakings
no. 161/2002 and rules on accounting for credit institutions no. 834/2003.
To the best of our knowledge these Consolidated Financial Statements give a true and fair view of the Group's assets, liabilities and financial position as at
31 December 2023 and the financial performance of the Group and changes of cash flows for the year 2023. Furthermore, in our opinion the Consolidated
Financial Statements and the Endorsement of the Board of Directors and the CEO give a fair view of the development and performance of the Group's
operations and its position and describe the principal risks and uncertainties faced by the Group.
In our opinion, the Consolidated Financial Statements of Kvika banki hf. for the year 2023 identified as "254900WR3I1Z9NPC7D84-2023-12-31-en" are
prepared in all material respects, in compliance with the European Single Electronic Format Regulation (ESEF).
The Board of Directors and the CEO of the Bank have today discussed the Consolidated Financial Statements for the year 2023 and confirmed them by the
means of their signatures.
Reykjavík, 15 February 2024.
Board of Directors
Consolidated Financial Statements 31 December 2023 6
Kvika banki hf.
Independent Auditor's Report
To the Board of Directors and Shareholders of Kvika banki hf.
Opinion
Basis for Opinion
Key Audit Matters
Key Audit Matters How the matter was addressed in our audit
Impairment charges for loans
•
• •
• •
• •
•
Management has provided further information about expected credit
losses and provisions for guarantees in notes 23, 48 and 84 to the
Consolidated Financial Statements.
Assumptions used in the expected credit loss models to incorporate
macroeconomic uncertainties.
Post-model adjustments for particular high-risk exposures, which are
not appropriately captured in the expected credit loss model.
The most significant judgements are:
Timely identification of exposures with significant increase in credit
risk and credit impaired exposures.
Valuation of collateral and assumptions of future cash flows on
manually assessed credit-impaired exposures.
We have reviewed the disclosures to the Consolidated Financial statements to
confirm compliance with IFRS.
Testing the appropriateness of forward looking information and how they
have been applied in the expected credit loss models.
We have audited the Consolidated Financial Statements of Kvika banki hf. for the year ended December 31, 2023 which comprise, the consolidated income
statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes
in equity, the consolidated statement of cash flows for the year then ended and the notes to the consolidated financial statements, including a summary of
significant accounting policies.
In our opinion, the accompanying Consolidated Financial Statements give a true and fair view of the consolidated financial position of Kvika banki hf. as at
December 31, 2023, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the EU and additional requirements, as applicable, in the Act on Annual Accounts, the Act on Financial
Undertakings and rules on accounting for credit institutions.
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in
the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Consolidated Financial Statements of
the current period. These matters were addressed in the context of our audit of the Consolidated Financial Statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Book value of loans to customers amounted to ISK 136,323 million at
year end (2022: ISK 107,139 million) and the total expected credit loss for
the group amounted to ISK 2,234 million (2022: ISK 2,666 million) against
loans at amortized cost, unused credit facilities and guarantees at 31
December 2023.
Based on our risk assessment and industry knowledge, we have examined the
impairment charges for loans and provisions for undrawn loan commitments and
evaluated the methodology applied as well as the assumptions made according to
the description of the key audit matter.
Our opinion in this report on the Consolidated Financial Statements is consistent with the content of the additional report that has been submitted to the
company´s audit committee in accordance with the EU Audit Regulation 537/2014 Article 11.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of Kvika banki hf. in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional
Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Iceland, and we have fulfilled
our other ethical responsibilities in accordance with these requirements and the IESBA.
Based on the best of our knowledge and belief, no prohibited services referred to in the EU Audit Regulation 537/2014 Article 5.1 has been provided.
Our examination included the following elements:
Testing of key controls over assumptions used in the expected credit loss
models.
Obtaining and substantively testing the evidence behind valuation of collateral
with particular focus on post-model adjustments applied to collateral value.
Measurement of loan impairment charges for loans and provisions for
guarantees is deemed a key audit matter as the determination of
assumptions for expected credit losses is highly subjective due to the
level of judgement applied by Management.
Substantively testing the PD models, related methodology and how they have
been applied in the expected credit loss models.
During our audit we have evaluated whether the Groups expected credit loss
models are compliant to IFRS 9.
Consolidated Financial Statements 31 December 2023 7
Kvika banki hf.
Independent Auditor's Report
Other information
Responsibilities of the Board of Directors and the CEO for the Consolidated Financial Statements
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
•
•
•
•
•
•
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon, except the
confirmation regarding report of the board of directors as stated below.
In accordance with Paragraph 2 article 104 of the Icelandic Financial Statement Act no. 3/2006, we confirm to the best of our knowledge that the
accompanying report of the board of directors includes all information required by the Icelandic Financial Statement Act that is not disclosed elsewhere in
the financial statements.
The Board of Directors and the CEO are responsible for the preparation and fair presentation of the Consolidated Financial Statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the EU and additional requirements in the Icelandic Financial Statement Act, and for such
internal control as the Board of Directors and the CEO determines is necessary to enable the preparation of Consolidated Financial Statements that are free
from material misstatement, whether due to fraud or error.
The board of directors and the audit committee are responsible for overseeing the Kvika banki hf. financial reporting process.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by
management.
Our objectives are to obtain reasonable assurance about whether the Consolidated Financial Statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these Consolidated Financial Statements.
The Board of Directors and the CEO are responsible for the other information. Other information comprises the report of board of directors, Statement of
the Corporate Governance and EU Taxonomy Regulation.
Evaluate the overall presentation, structure and content of the Consolidated Financial Statements, including the disclosures, and whether the
Consolidated Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an
opinion on the Consolidated and Separate Financial Statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the Consolidated Financial Statements, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of Kvika banki hf.'s internal control.
In preparing the Consolidated Financial Statements, the Board of Directors and the CEO are responsible for assessing Kvika banki hf.’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors and
the CEO either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.
Consolidated Financial Statements 31 December 2023 8
Kvika banki hf.
Independent Auditor's Report
Report on other legal and regulatory requirements
Report on European single electronic format (ESEF Regulation)
Deloitte ehf.
The consolidated financial statements of Kvika banki hf. for the year ended 31 December 2023 are electronically certificated by the auditor.
Kópavogur, 15 February 2024.
In addition to our work as the auditors of Kvika banki hf., Deloitte has provided the firm with permitted additional services such as review of interim
financial statements, other assurance engagements and consultation on tax matters. Deloitte has in place internal procedures in order to ensure its
independence before acceptance of additional services. Deloitte has provided to the audit commitee written confirmation that Deloitte is independent of
Kvika banki hf.
Deloitte was appointed auditor of Kvika banki hf. by the general meeting of shareholders on March 30th 2023. Deloitte have been elected since the general
meeting 2016.
Guðmundur Ingólfsson
As part of our audit of the Consolidated Financial Statements of Kvika banki hf. we performed procedures to be able to issue an opinion on whether the
Consolidated Financial Statements of Kvika banki hf. for the year 2023 with the file name „254900WR3I1Z9NPC7D84‐2023‐12‐31‐en.zip “is prepared, in all
material respects, in compliance with laws no. 20/2021 disclosure obligation of issuers of securities and the obligation to flag relating to requirements
regarding European single electronic format regulation EU 2019/815 which include requirements related to the preparation of the Consolidated Financial
Statements in XHTML format and iXBRL markup.
Management is responsible for preparing the Consolidated Financial Statements in compliance with laws no. 20/2021 disclosure obligation of issuers of
securities and the obligation to flag. This responsibility includes preparing the Consolidated Financial Statements in a XHTML format in accordance to EU
regulation 2019/815 on the European single electronic format (ESEF regulation).
Our responsibility is to obtain reasonable assurance, based on evidence that we have obtained, on whether the Consolidated Financial Statements is
prepared in all material respects, in compliance with the ESEF Regulation, and to issue a report that includes our opinion. The nature, timing and extent of
procedures selected depend on the auditor's judgement, including the assessment of the risks of material departures from the requirement set out in the
ESEF regulation, whether due to fraud or error.
In our opinion, the Consolidated Financial Statements of Kvika banki hf. for the 2023 with the file name „254900WR3I1Z9NPC7D84‐2023‐12‐31‐en.zip“ is
prepared, in all material respects, in compliance with the ESEF Regulation.
We communicate with the Board of Directors and the Audit Committee regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
State Authorized Public Accountant
We also provide the Board of Directors and the Audit Committee with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated with the Board of Directors and the Audit Committee, we determine those matters that were of most significance in the
audit of the Consolidated Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s
report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits
of such communication.
Consolidated Financial Statements 31 December 2023 9
Kvika banki hf. Amounts are in ISK thousands
Consolidated Income Statement
For the year 2023
Notes 2023 2022 *
22,425,240 14,576,190
(14,404,510) (7,491,240)
Net interest income
6
8,020,729 7,084,950
6,455,647 6,878,725
(539,199) (465,056)
Net fee and commission income
7
5,916,447 6,413,668
8 442,389 278,360
26 35,756 26,725
436,900 675,408
Other net operating income
915,045 980,493
Net operating income
14,852,222 14,479,111
10-13 (10,784,684) (9,091,533)
14 (1,027,489) (567,322)
(31,048) (17,646)
Profit before taxes from continuing operations
3,009,001 4,802,611
15 (389,673) 45,255
16 (82,026) (309,391)
17 (233,414) (185,348)
Profit for the year from continuing operations
2,303,887 4,353,127
Discontinued operations
4 1,730,389 560,255
Profit for the year
4,034,276 4,913,381
Notes 2023 2022
4,018,503 4,882,945
25 15,772 30,437
Profit for the year
4,034,276 4,913,381
Earnings per share 18
0.84 1.02
0.84 1.02
* Comparative information has been restated, reference is made to note 4 for further information.
The notes on pages 17 to 77 are an integral part of these Consolidated Financial Statements.
Other operating income ....................................................................................................................................................
Administrative expenses ...................................................................................................................................................
Net impairment .................................................................................................................................................................
Revaluation of contingent consideration .........................................................................................................................
Share in profit of associates, net of income tax ...............................................................................................................
Interest income .................................................................................................................................................................
Interest expense ................................................................................................................................................................
Fee and commission income .............................................................................................................................................
Fee and commission expense ...........................................................................................................................................
Net financial income .........................................................................................................................................................
Diluted earnings per share (ISK per share) .......................................................................................................................
Income tax .........................................................................................................................................................................
Attributable to the shareholders of Kvika banki hf. .........................................................................................................
Attributable to non-controlling interest ...........................................................................................................................
Special tax on financial institutions ..................................................................................................................................
Special tax on financial activity .........................................................................................................................................
Basic earnings per share (ISK per share) ...........................................................................................................................
Profit after tax for the year from discontinued operations ..............................................................................................
Consolidated Financial Statements 31 December 2023 10
Kvika banki hf. Amounts are in ISK thousands
For the year 2023
Notes 2023 2022
Profit for the year 4,034,276 4,913,381
(433,002) (537,359)
77,089 37,864
Changes to reserve for financial assets at fair value through OCI
(355,912) (499,495)
28,808 (3,706)
Other comprehensive income that is or may be reclassified subsequently to profit and loss
(327,105) (503,202)
Total comprehensive income for the year
3,707,171 4,410,180
Notes 2023 2022
3,691,399 4,374,678
15,772 35,502
Total comprehensive income for the year
3,707,171 4,410,180
The notes on pages 17 to 77 are an integral part of these Consolidated Financial Statements.
Consolidated Statement of Comprehensive Income
Attributable to the shareholders of Kvika banki hf. .....................................................................................................
Attributable to non-controlling interest .......................................................................................................................
Exchange difference on translation of foreign operations ......................................................................................
Changes in fair value of financial assets through OCI, net of tax .............................................................................
Realized net loss transferred to the Income Statement, net of tax .........................................................................
Consolidated Financial Statements 31 December 2023 11
Kvika banki hf. Amounts are in ISK thousands
Consolidated Statement of Financial Position
As at 31 December 2023
Assets Notes 31.12.2023 31.12.2022*
19 23,681,453 36,670,586
20 64,977,406 65,160,407
21 3,857,480 19,410,508
22 16,852,313 13,841,853
23 136,323,481 107,139,227
24 2,497,877 4,940,738
26 96,194 88,988
27 0 1,165,398
28 21,906,363 34,079,900
29 530,144 884,222
618,361 480,706
15, 30 2,902,580 3,232,933
0 691,239
31 10,401,128 11,883,489
4 50,752,652 0
Total assets
335,397,432 299,670,195
Liabilities
32 133,772,941 112,245,198
0 21,101,090
33 23,817,062 28,120,009
34 45,715,427 38,103,414
35 5,993,084 3,686,451
36 131,745 1,486,107
37 4,230 1,343,186
24 2,196,904 1,609,537
17 203,214
30 272,615 944,274
38 16,593,993 9,738,535
4 24,941,611 0
Total liabilities
253,439,628 218,581,015
Equity
39 4,722,073 4,781,026
47,661,777 48,602,825
4,330,081 3,068,159
25,171,754 24,559,886
Total equity attributable to the shareholders of Kvika banki hf.
81,885,685 81,011,895
25 72,119 77,285
Total equity
81,957,804 81,089,180
Total liabilities and equity
335,397,432 299,670,195
* Comparative information has been restated, reference is made to note 3 for further information.
The notes on pages 17 to 77 are an integral part of these Consolidated Financial Statements.
Investment properties ............................................................................................................................
Other reserves ........................................................................................................................................
Retained earnings ...................................................................................................................................
Issued bonds ...........................................................................................................................................
Reinsurance contract assets ...................................................................................................................
Operating lease assets ............................................................................................................................
Cash and balances with Central Bank .....................................................................................................
Other assets ............................................................................................................................................
Deferred tax assets .................................................................................................................................
Subordinated liabilities ...........................................................................................................................
Derivatives ..............................................................................................................................................
Fixed income securities ..........................................................................................................................
Shares and other variable income securities .........................................................................................
Securities used for hedging ....................................................................................................................
Loans to customers .................................................................................................................................
Investment in associates ........................................................................................................................
Intangible assets .....................................................................................................................................
Property and equipment ........................................................................................................................
Assets classified as held for sale .............................................................................................................
Deposits .................................................................................................................................................
Insurance contract liabilities ..................................................................................................................
Borrowings ..............................................................................................................................................
Non-controlling interest .........................................................................................................................
Short positions held for trading ..............................................................................................................
Short positions used for hedging ............................................................................................................
Current tax liabilities ...............................................................................................................................
Share capital ...........................................................................................................................................
Share premium .......................................................................................................................................
Other liabilities .......................................................................................................................................
Liabilities associated with assets classified as held for sale ...................................................................
Deferred tax liabilities ............................................................................................................................
Derivatives ..............................................................................................................................................
Consolidated Financial Statements 31 December 2023 12
Kvika banki hf. Amounts are in ISK thousands
Consolidated Statement of Changes in Equity
For the year 2023
Deficit Trans- Restricted Total share- Non-
Share Share Option Warrants reduction Fair value lation retained Retained holders' controlling Total
1 January 2023 to 31 December 2023 Notes capital premium reserve reserve reserve reserve reserve earnings earnings equity interest equity
4,781,026 48,602,825 155,951 0 1,203,697 (574,319) 57,338 2,225,492 24,559,886 81,011,895 77,285 81,089,180
4,018,503 4,018,503 15,772 4,034,276
(433,002) (433,002) (433,002)
77,089 77,089 77,089
28,808 28,808 0 28,808
0 0 0 0 0 (355,912) 28,808 0 4,018,503 3,691,399 15,772 3,707,171
1,443,488 (1,443,488) 0 0
127,884 (127,884) 0 0
(58,952) (941,048) (1,000,000) (1,000,000)
(1,912,410) (1,912,410) (1,912,410)
68 17,654 73,997 91,651 91,651
Other transactions
3,150 3,150 (20,938) (17,788)
Equity as at 31 December 2023
4,722,073 47,661,777 173,605 0 1,203,697 (930,231) 86,145 3,796,865 25,171,754 81,885,685 72,119 81,957,804
The notes on pages 17 to 77 are an integral part of these Consolidated Financial Statements.
(11,871,920) 22,720,166 173,605 ######## 1,117,551 (5,652,304) 86,145 3,623,260 23,968,057 72,119
Dividend paid to shareholders ..................................................
Transactions with owners of the Bank
Stock options .............................................................................
Acquisition from a non-controlling interest .............................
Other reserves
Profit for the year ..........................................................................
Restricted due to subsidiaries and associates ..............................
Translation of foreign operations
Exchange difference on translation of foreign operations .......
Equity as at 1 January 2023 ...........................................................
Total comprehensive income for the year ....................................
Realized net loss transferred to the Income Statement ...............
Changes in fair value of financial assets through OCI ...................
Restricted due to development costs ...........................................
Treasury shares acquired as part of a buy-back programme ...
Consolidated Financial Statements 31 December 2023 13
Kvika banki hf. Amounts are in ISK thousands
Consolidated Statement of Changes in Equity
For the year 2022
Deficit Trans- Restricted Total share- Non-
Share Share Option Warrants reduction Fair value lation retained Retained holders' controlling Total
1 January 2022 to 31 December 2022 Notes capital premium reserve reserve reserve reserve reserve earnings earnings equity interest equity
4,790,139 50,316,002 4,430 56,468 3,103,697 (74,823) 66,109 6,457,912 13,696,745 78,416,678 (49,058) 78,367,620
3 (101,285) (101,285) (101,285)
4,790,139 50,316,002 4,430 56,468 3,103,697 (74,823) 66,109 6,457,912 13,595,460 78,315,393 (49,058) 78,266,335
4,882,945 4,882,945 30,437 4,913,381
(537,359) (537,359) (537,359)
37,864 37,864 37,864
Translation of foreign operations
(8,772) (8,772) 5,066 (3,706)
0 0 0 0 0 (499,495) (8,772) 0 4,882,945 4,374,678 35,502 4,410,180
(4,321,471) 4,321,471 0 0
89,050 (89,050) 0 0
(1,900,000) 1,900,000 0 0
138,758 1,086,482 1,225,240 1,225,240
(147,871) (2,856,127) (3,003,998) (3,003,998)
68 151,521 39,902 191,423 191,423
56,468 (56,468) 0 0
(90,841) (90,841) 90,841 0
Equity as at 31 December 2022
4,781,026 48,602,825 155,951 0 1,203,697 (574,319) 57,338 2,225,492 24,559,886 81,011,895 77,285 81,089,180
The notes on pages 17 to 77 are an integral part of these Consolidated Financial Statements.
Impact of adopting IFRS 17 .......................................................
Equity as at 1 January 2022 ...........................................................
Total comprehensive income for the year ....................................
Acquisition of non-controlling interest via merger ...................
Stock options .............................................................................
Restricted due to subsidiaries and associates ..............................
Other transactions
Capital increase .........................................................................
Transactions with owners of the Bank
Warrants exercised ...................................................................
Treasury shares acquired as part of a buy-back programme ...
Restricted due to development costs ...........................................
Other reserves
Changes in fair value of financial assets through OCI ...................
Realized net loss transferred to the Income Statement ...............
Profit for the year ..........................................................................
Exchange difference on translation of foreign operations .......
Restated opening balance under IFRS 17 ..................................
Transfer from deficit reduction reserve ........................................
Consolidated Financial Statements 31 December 2023 14
Kvika banki hf. Amounts are in ISK thousands
Consolidated Statement of Cash Flows
For the year 2023
Cash flows from operating activities Notes 2023 2022 *
4,034,276 4,913,381
(188,114) 883,787
(35,756) (26,725)
1,109,490 1,190,515
(8,020,729) (7,675,450)
1,027,489 531,823
705,114 212,479
445,029 329,020
94,801 98,030
(828,401) 456,862
Changes in:
(21,211,295) (25,738,126)
227,425 2,048,054
(3,010,460) 8,243,842
(29,420,426) (22,900,240)
2,442,861 (2,206,522)
194,187 673,986
484,156 (4,030,841)
20,669,844 31,715,859
2,166,335 1,992,084
(2,693,319) 224,794
529,292 (2,073,983)
8,286,647 2,408,926
(21,334,752) (9,642,164)
21,389,947 14,169,572
(13,561,855) (6,624,663)
(494,455) (212,479)
Net cash to operating activities
(14,829,515) (1,852,872)
Cash flows from investing activities
28 (1,539,716) (835,246)
(342,664) (607,535)
27,493 6,087
(20,938) (318,994)
Net cash to investing activities
(1,875,826) (1,755,687)
Cash flows from financing activities
(5,176,815) (1,543,572)
10,821,525 5,551,208
0 2,000,000 0
0 1,225,240
(1,000,000) (3,003,998)
(1,912,410) 0
(424,085) (410,412)
Net cash from financing activities
4,308,215 1,818,466
(12,397,126) (1,790,093)
36,670,586 38,645,894
4 (995,561) 0
403,554 (185,215)
Cash and balances with Central Bank at the end of the year
19 23,681,453 36,670,586
* Comparative information has been restated, reference is made to note 3 for further information.
The notes on pages 17 to 77 are an integral part of these Consolidated Financial Statements.
Acquired own shares ........................................................................................................................................
Net change in cash and balances with Central Bank ........................................................................................
Repayment of lease liabilities ...........................................................................................................................
Acquisition of intangible assets ........................................................................................................................
Increase in share capital and share premium ..................................................................................................
Issued bonds .....................................................................................................................................................
Subordinated liabilities .....................................................................................................................................
Dividend paid to shareholders .........................................................................................................................
Change in cash and cash equivalents due to assets held for sale ....................................................................
Effects of exchange rate fluctuations on cash and balances with Central Bank ..............................................
Cash and balances with Central Bank at the beginning of the year .................................................................
Other liabilities ..............................................................................................................................................
Interest paid ......................................................................................................................................................
Income tax paid ................................................................................................................................................
Fixed income securities ................................................................................................................................
Shares and other variable income securities ...............................................................................................
Other assets ..................................................................................................................................................
Operating lease assets ..................................................................................................................................
Derivatives - liabilities ...................................................................................................................................
Securities used for hedging ..........................................................................................................................
Derivatives - assets .......................................................................................................................................
Insurance contract liabilities .........................................................................................................................
Short positions ..............................................................................................................................................
Loans to customers .......................................................................................................................................
Deposits .......................................................................................................................................................
Net interest income ......................................................................................................................................
Income tax ....................................................................................................................................................
Interest received ...............................................................................................................................................
Net acquisition of property and equipment .....................................................................................................
Borrowings ........................................................................................................................................................
Dividend from associates ..................................................................................................................................
Acquisition of subsidiary and associates, net of cash ......................................................................................
Profit for the year .............................................................................................................................................
Adjustments for:
Indexation and exchange rate difference ....................................................................................................
Share in profit of associates, net of income tax ...........................................................................................
Depreciation and amortisation .....................................................................................................................
Net impairment .............................................................................................................................................
Other adjustments ........................................................................................................................................
Adjustment relating to assets held for sale ..................................................................................................
Consolidated Financial Statements 31 December 2023 15
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
0
General information Page Risk management (cont.) Page
1 Reporting entity ........................................................................... 17 49 Loan-to-value ..................................................................................... 45
2 Basis of preparation ..................................................................... 17 50 Collateral against exposures to derivatives ....................................... 45
3 Changes in accounting policies .................................................... 18 51 Large exposures .................................................................................. 45
4 Discontinued operations .............................................................. 19 52 Liquidity risk ....................................................................................... 46
53 Market risk .......................................................................................... 49
Segment information 54 Interest rate risk ................................................................................. 49
5 Business segments ....................................................................... 21 55 Interest rate risk associated with trading portfolios .......................... 49
56 Interest rate risk associated with non-trading portfolios .................. 50
Income statement 57 Exposure towards changes in the CPI ................................................ 51
6 Net interest income ..................................................................... 23 58 Currency risk ....................................................................................... 51
7 Net fee and commission income ................................................. 23 59 Equity risk ........................................................................................... 53
8 Net financial income .................................................................... 23 60 Operational risk .................................................................................. 53
9 Foreign currency exchange difference ........................................ 24
10 Administrative expenses .............................................................. 24 Financial assets and liabilities
11 Salaries and related expenses ..................................................... 24 61 Accounting classification of financial assets and financial liabilities . 54
12 Employment terms of the Board of Directors and management 25 62 Financial assets and financial liabilities measured at fair value ........ 55
13 Auditor's fees ............................................................................... 25 63 Financial assets and financial liabilities not measured at fair value .. 58
14 Net impairment ............................................................................ 26
15 Income tax .................................................................................... 26 Other information
16 Special tax on financial activity .................................................... 26 64 Pledged assets .................................................................................... 59
17 Special tax on financial institutions ............................................. 26 65 Related parties ................................................................................... 59
18 Earnings per share ....................................................................... 26 66 Remuneration policy .......................................................................... 59
67 Incentive scheme ................................................................................ 60
Statement of Financial Position 68 Share-based payments ....................................................................... 60
19 Cash and balances with Central Bank .......................................... 27 69 Shareholders of the Bank ................................................................... 62
20 Fixed income securities ................................................................ 27 70 Others matters ................................................................................... 62
21 Shares and other variable income securities ............................... 27 71 Events after the reporting date .......................................................... 62
22 Securities used for hedging .......................................................... 27
23 Loans to customers ...................................................................... 28 Significant accounting policies 63
24 Derivatives ................................................................................... 28
25 Group entities .............................................................................. 29
26 Investment in associates .............................................................. 29
27 Investment properties ................................................................. 29
28 Intangible assets .......................................................................... 30
29 Operating lease assets ................................................................. 31
30 Deferred tax assets and liabilities ................................................ 31
31 Other assets ................................................................................. 31
32 Deposits ....................................................................................... 31
33 Borrowings ................................................................................... 32
34 Issued bonds ................................................................................ 32
35 Subordinated liabilities ................................................................ 32
36 Short positions held for trading ................................................... 33
37 Short positions used for hedging ................................................. 33
38 Other liabilities ............................................................................. 33
39 Share capital ................................................................................. 34
40 Solvency of a financial conglomerate .......................................... 34
41 Capital adequacy ratio (CAR) ....................................................... 35
42 Solvency of insurance activities ................................................... 36
43 Leverage ratio .............................................................................. 36
Risk management
44 Risk management framework ...................................................... 37
45 Hedging ........................................................................................ 38
46 Credit risk - overview ................................................................... 38
47 Maximum exposure to credit risk ................................................ 40
48 Credit quality of financial assets .................................................. 40
Consolidated Financial Statements 31 December 2023 16
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
0
General information
1. Reporting entity
2. Basis of preparation
a. Statement of compliance
b. Basis of measurement
-
-
-
-
-
-
- shared based payment is accounted for in accordance with IFRS 2;
-
-
c. Functional and presentation currency
d. Going concern
e. Estimates and judgements
f. Relevance and importance of notes to the reader
The Group's assets and liabilities which are denominated in other currency than ISK are translated to ISK using the exchange rate as at the end of day 31
December 2023.
The estimates and underlying assumptions are based on historical results and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements about carrying amounts of assets and liabilities that are not readily
apparent from other sources.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which
the estimate is revised if the revision affects only that period or in the period and future periods if the revision affects both current and future periods.
Information about areas of estimation uncertainty and critical judgements made by management in applying accounting policies that can have a
significant effect on the amounts recognised in the Consolidated Financial Statements is provided in note 112.
In order to enhance the informational value of the Consolidated Financial Statements, the notes are evaluated based on relevance and importance for
the reader. This can result in information, that has been evaluated as neither important nor relevant for the reader, not being presented in the notes.
derivatives are measured at fair value;
short positions are measured at fair value
investment properties are measured at fair value;
certain loans to customers which are measured at fair value;
contingent consideration is measured at fair value; and
Kvika banki hf. ("Kvika" or the "Bank") is a limited liability company incorporated and domiciled in Iceland, with its registered office at Katrínartún 2,
Reykjavík. The Bank operates as a bank based on Act No. 161/2002, on Financial Undertakings, and is supervised by the Financial Supervisory Authority
of the Central Bank ("FME"). The Group, comprised of Kvika and its subsidiaries, has been designated by the FME as a financial conglomerate as defined
in Article no. 3 of Act no. 61/2017 on Additional Supervision of Financial Conglomerates.
The Consolidated Financial Statements were approved and authorised for issue by the Board of Directors and the CEO on 15 February 2024.
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the
European Union and additional requirements, as applicable, in the Act on Annual Accounts no. 3/2006, the Act on Financial Undertakings no. 161/2002
and rules on accounting for credit institutions no. 834/2003.
The Consolidated Financial Statements have been prepared using the historical cost basis except for the following:
The Consolidated Financial Statements for the year ended 31 December 2023 comprise Kvika banki hf. and its subsidiaries (together referred to as the
Group). As disclosed in December 2022, and discussed in the Consolidated Financial Statements for 2022, changes were made to the Group's operating
segments which took effect on 1 January 2023. Furthermore, as disclosed in note 4, the subsidiary TM tryggingar hf. has been classified as a disposal
group held for sale. Insurance operations are therefore a discontinued operation and are no longer reported as an operating segment. The Group
operates four business segments, Asset Management, Corporate Banking, Corporate Banking and Capital Markets and UK operations. Operating
without a branch network, Kvika provides businesses, investors, and individuals with investment banking, insurance, asset management, payment, and
banking services.
Due to the reclassification of the subsidiary TM tryggingar hf. as disposal group held for sale, in accordance with IFRS 5, comparative figures in the
Income Statement have been restated, reference is made to note 4.
fixed income securities are measured at fair value;
shares and other variable income securities are measured at fair value;
The Bank's management has assessed the Group's ability to continue as a going concern and is satisfied that the Group has the resources to continue its
operations.
The preparation of financial statements in accordance with IFRSs requires management to make judgements, estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these
estimates.
The Consolidated Financial Statements are prepared in Icelandic Krona (ISK), which is the Group's functional currency. All financial information has been
rounded to the nearest thousand, unless otherwise stated.
securities used for hedging are measured at fair value;
Consolidated Financial Statements 31 December 2023 17
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
0
3. Changes in accounting policies
Hedge accounting
IFRS 17, Insurance contracts
Recognition, measurement and presentation of insurance contracts
Transition
-
-
Effect on the statement of financial position
Effect on the income statement
The Group adopted hedge accounting according to IAS 39, in line with exemption from IFRS 9. The purpose of the hedge accounting is to hedge against
exchange difference on translation of foreign operations. Derivatives are used as a hedging instrument against translation of foreign operations in
equity.
If the hedge relationship does not meet the above criteria due to inefficiency, the foreign currency exchange difference is recognised in the
consolidated income statement instead of equity. If the derivative instrument is sold, expires, terminated or exercised in the period that the hedge
relationship is in place, the hedge relationship becomes ineffective and hedge accounting is ceased.
The Group documents the relationship between the hedge instrument and hedged item on initial recognition. An efficiency test is performed according
to IAS 39 to determine if the hedge relationship is effective. The results of the efficiency test must be in the range of 80-125% to be considered
effective.
On 1 January 2023 the Group adopted IFRS 17 and hedge accounting according to IFRS 9 and IAS 39. The sections below explain in further details the
change for both adoptions.
recognised any resulting net difference in equity. The carrying amount of goodwill from previous business combinations was not adjusted.
Changes in accounting policies resulting from the adoption of IFRS 17 have been applied using a full retrospective approach. Under the full
retrospective approach, at 1 January 2022 the Group:
Identified, recognised and measured each group of insurance and reinsurance contracts as if IFRS 17 had always been applied;
The Group has initially applied IFRS 17, including any consequential amendments to other standards, from 1 January 2023, replacing IFRS 4 Insurance
contracts. This standard has brought changes to the accounting for insurance and reinsurance contracts. As a result, the Group has restated certain
comparative amounts.
The nature and effects of the key changes in the Group’s accounting policies resulting from its adoption of IFRS 17 is summarised below.
IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts, reinsurance contracts and
investment contracts with discretionary participation features. It introduces a model that measures groups of contracts based on the Group’s estimates
of the present value of future cash flows that are expected to arise as the Group fulfils the contracts, an explicit risk adjustment for non-financial risk.
Other changes include the inclusion of liability for unpaid operational expenses allocated to insurance in the liability of incurred claims and the
evaluation of the Risk Adjustment, both gross and reinsurers share, which is different to the previous calculation of Risk Margin in IFRS4.
The table below shows the effect of implementation on the Consolidated Statement of Financial Position at 1 January 2022:
The largest change to the Group’s statement of financial position is that instead of the current premium provision, which is a large part of the insurance
provision, there is now only a liability equal to premiums received, i.e. liability for remaining coverage. The Group has decided to charge acquisition
costs as they occur instead of amortising over the contract period. The provision only applies to premiums received and therefore no accounts
receivables are formed on the asset side of the statement of financial position (a part of the Group’s other assets) related to the premiums for the
remaining period of the contracts. The effects of this are similar to the effects of subtracting accounts receivables for premiums from the current
premium reserve.
The classification the subsidiary TM tryggingar hf. as discontinued operations resulted in comparative information being restated. Refer to note 4 for
more information on the discontinued operations.
31.12.2022 Impact of 31.12.2022 IFRS 4 IFRS 17 IFRS 17Assets: Reinsurance assets .............................................................................................................................627,469 (627,469) 0 Reinsurance contract assets ...............................................................................................................0 691,239 691,239 Other assets ........................................................................................................................................15,465,850 (3,582,361) 11,883,489 All other assets ...................................................................................................................................287,095,467 0 287,095,467 Total assets303,188,786 (3,518,591) 299,670,195 Liabilities and Equity: Technical provisions ...........................................................................................................................24,362,281 (24,362,281) 0 Insurance contract liabilities ..............................................................................................................0 21,101,090 21,101,090 Other liabilities ...................................................................................................................................9,894,650 (156,115) 9,738,535 Retained earnings ...............................................................................................................................24,661,171 (101,285) 24,559,886 All other liabilities and equity ............................................................................................................244,270,684 0 244,270,684 Total liabilities and equity303,188,786 (3,518,591) 299,670,195
Consolidated Financial Statements 31 December 2023 18
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
3
4. Discontinued operations
* Comparative information has been restated.
The results of the discontinued operations for the year are presented below:
In early October 2023, the Bank announced that following a strategic review at Kvika, the BOD has decided to initiate a process for selling or listing of
its insurance subsidiary TM tryggingar hf. ("TM"), a wholly owned subsidiary. In December 2023, the Bank further announced that it had received non-
binding offers for the share capital of TM, both for all outstanding shares and part of the shares. It is anticipated that the sale or listing of TM will be
completed in the second or third quarter of 2024. At year-end 2023, TM was classified as a disposal group held for sale and as a discontinued
operation. TM is measured at the lower of carrying amount upon the date of reclassification and fair value less costs to sell.
Restated Consolidated Income Statement for the year 2022:
Assets 31.12.2023 Cash and balances with Central Bank ...........................................................................................................................................................995,561 Fixed income securities ................................................................................................................................................................................19,824,505 Shares and other variable income securities ...............................................................................................................................................14,543,128 Investment properties ..................................................................................................................................................................................1,240,135 Intangible assets ...........................................................................................................................................................................................12,615,362 Other assets ..................................................................................................................................................................................................1,533,960 Assets classified as held for sale50,752,652 Liabilities Insurance contract liabilities ........................................................................................................................................................................23,267,425 Deferred tax liabilities ..................................................................................................................................................................................629,063 Other liabilities .............................................................................................................................................................................................1,045,123 Liabilities associated with assets classified as held for sale24,941,611 Eliminations with the Group .........................................................................................................................................................................1,018,962 Net assets directly associated with disposal group26,830,002
Published Operation of accountsTM tryggingar2022* Net interest income .........................................................................................................................7,675,450 (590,500) 7,084,950 Net fee and commission income .....................................................................................................6,408,110 5,558 6,413,668 Insurance revenue ...........................................................................................................................16,517,836 (16,517,836) 0 Incurred claims and net expense from reinsurance contract held .................................................(12,307,539) 12,307,539 0 Net financial income ........................................................................................................................272 278,089 278,360 Share in profit of associates, net of income tax ..............................................................................26,725 0 26,725 Other operating income ...................................................................................................................859,600 (184,192) 675,408 Administrative expenses related to insurance service ....................................................................(13,075,783) 3,984,250 (9,091,533) Net impairment ................................................................................................................................(531,823) (35,498) (567,322) Revaluation of contingent consideration ........................................................................................(17,646) 0 (17,646) Revaluation of investment properties .............................................................................................65,398 (65,398) 0 Income tax and other taxes .............................................................................................................(707,218) 257,734 (449,484) Discontinued operations ..................................................................................................................560,255 560,255 Profit for the year4,913,381 0 4,913,381
2023 2022* Net interest income .......................................................................................................................................................896,360 590,500 Net fee and commission income ...................................................................................................................................24,243 (5,558) Insurance revenue .........................................................................................................................................................18,484,259 16,517,836 Incurred claims and net expense from reinsurance contract held ...............................................................................(13,466,035) (12,088,132) Net financial income ......................................................................................................................................................437,768 (497,495) Other operating income ................................................................................................................................................199,837 184,192 Administrative expenses related to insurance service ..................................................................................................(4,523,638) (4,130,623) Net impairment ..............................................................................................................................................................20,893 35,498 Revaluation of investment properties ...........................................................................................................................59,602 65,398 Income tax .....................................................................................................................................................................(483,429) (227,066)1,649,861 444,550 Administrative expenses, stranded costs ......................................................................................................................102,402 146,374 Income tax .....................................................................................................................................................................(21,874) (30,668)Profit for the year from discontinued operations1,730,389 560,255
The major classes of assets and liabilities of the discontinued operations as at year-end 2023 are, as follows:
Consolidated Financial Statements 31 December 2023 19
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
3
4. Discontinued operations (cont.)
Amounts included in accumulated OCI: 2023 2022 Fair value of financial assets through OCI .....................................................................................................................(387,416) (221,950) Deferred tax on fair value reserve .................................................................................................................................77,483 44,390 Reserve of disposal group classified as held for sale(309,933) (177,560)The net cash flows incurred by the discontinued operations are as follows:2023 2022 Operating .......................................................................................................................................................................4,779,187 4,008,670 Investing .........................................................................................................................................................................(6,207,467) 550,856 Financing ........................................................................................................................................................................(6,980) (4,181,195)Net cash (outflow)/inflow(1,435,260) 378,331
Consolidated Financial Statements 31 December 2023 20
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2023
21
Notes to the Consolidated Financial Statements
Segment information
5. Business segments
Segment reporting is based on the same principles and structure as internal reporting to the CEO and the Board of Directors. Segment performance is
evaluated on profit before tax.
Reportable segments
As disclosed in December 2022, and discussed in the Consolidated Financial Statements for 2022, changes were made to the Group's operating
segments which took effect on 1 January 2023. The specialised financing operations of the Commercial Banking division, along with the Investment
Banking division, now form a new revenue division, Corporate Banking and Capital Markets. Furthermore, as disclosed in note 4, the subsidiary TM
tryggingar hf. has been classified as a disposal group held for sale. Insurance operation are therefore a discontinued operations and are no longer
reported as an operating segment. During the year 2023, the Group defined four reportable operating segments; Asset Management, Commercial
Banking, Corporate Banking and Capital Markets and UK operations. The figures for the year 2023 reflect the operating segment structure that was in
place during that year, taking into account the discontinuation of the insurance operations, and comparison amounts for the previous year have been
restated accordingly.
- Asset Management
Products and services offered include asset management involving both domestic and foreign assets, private banking and private pension plans.
The management of a broad range of mutual funds, investment funds and institutional investor funds is included in this segment through the
operations of Kvika eignastýring hf.
- Commercial Banking
Commercial Banking offers various forms of banking services and related advisory services. Included in this operating segment is Lykill, the leasing
operations of the Group, and the Group's fintech operations, such as Auður, Netgíró and Aur, as well as the payment facilitation operations of
Straumur greiðslumiðlun hf.
- Corporate Banking and Capital Markets
Corporate Banking & Capital Markets provide a range of professional services in the fields of specialised financing, securities and foreign exchange
transactions and corporate finance services. The functions of Market Making and Treasury are also included in the segment although they are a
part of Kvika's Finance division.
- UK operations
The UK operations consist of asset management and corporate finance services through Kvika Securities Ltd. and specialised lending services
through Ortus Secured Finance Ltd.
UK operations is the only geographic area outside of Iceland and for the period 2023 it accounts for 9.5% (2022: 7.2%) of net operating income.
Supporting units consist of the functions carried out by the Bank's support divisions, such as Risk Management, Finance, IT and Operations, etc. The
information presented relating to the supporting units does not represent an operating segment.
Corporate Banking Asset Commercial & Capital UK Supporting 2023 Management Banking Markets operations units Total Net interest income .................................................. 10,189 3,376,880 3,883,048 802,850 (52,238) 8,020,729 Net fee and commission income .............................. 2,475,130 1,373,071 1,577,910 474,892 15,445 5,916,447 Net financial income ................................................. 70,982 1,666 242,588 127,153 0 442,389 Share in profit of associates ...................................... (215) 35,732 239 0 0 35,756 Other operating income ........................................... 52,127 281,480 13,757 - 89,536 436,900 Net operating income 2,608,213 5,068,829 5,717,542 1,404,895 52,743 14,852,222 Salaries and related expenses .................................. (1,099,077) (863,879) (1,078,325) (612,421) (2,799,897) (6,453,599) Other operating expenses ........................................ (101,411) (1,628,797) (302,209) (521,573) (1,777,095) (4,331,085) Administrative expenses (1,200,488) (2,492,676) (1,380,534) (1,133,994) (4,576,991) (10,784,684) Net impairment ......................................................... - (312,534) (510,900) (204,496) 440 (1,027,489) Revaluation of contingent consideration ................. (31,048) - - - - (31,048) Cost allocation .......................................................... (944,653) (1,649,936) (1,405,737) (328,058) 4,328,384 - Profit (loss) before tax 432,024 613,684 2,420,371 (261,654) (195,424) 3,009,001 Net segment revenue from external customers ............................................................... 2,618,572 1,311,187 8,389,039 2,465,677 67,748 14,852,222 Net segment revenue from other segments ................................................................ (10,359) 3,757,642 (2,671,496) (1,060,782) (15,005) 0
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
4
5. Business segments (cont.)
Corporate Banking Asset Commercial & Capital UK Supporting 2022 * Management Banking Markets operations units Total Net interest income ..................................................2,377 3,595,425 3,133,671 452,856 (99,379) 7,084,950 Net fee and commission income ..............................3,068,805 969,612 1,976,767 349,492 48,992 6,413,668 Net financial income .................................................62,421 (71,703) 39,792 247,678 172 278,360 Share in profit of associates ......................................(68) 26,793 0 0 0 26,725 Other operating income ...........................................9,089 559,556 - (1,098) 107,862 675,408 Net operating income 3,142,624 5,079,683 5,150,229 1,048,928 57,647 14,479,111 Salaries and related expenses ..................................(1,080,555) (661,651) (1,027,227) (416,019) (2,094,568) (5,280,020) Other operating expenses ........................................(84,732) (1,424,551) (301,764) (561,705) (1,438,762) (3,811,513)Administrative expenses (1,165,287) (2,086,201) (1,328,991) (977,723) (3,533,330) (9,091,533) Net impairment .........................................................- (56,754) (416,432) (94,136) - (567,322) Revaluation of contingent consideration .................(17,646) - - - - (17,646) Cost allocation ..........................................................(866,607) (1,009,427) (1,193,468) (217,730) 3,287,233 -Profit (loss) before tax 1,093,085 1,927,300 2,211,338 (240,661) (188,451) 4,802,611 Net segment revenue from external customers ...............................................................3,162,433 4,053,650 5,642,393 1,569,324 51,312 14,479,111 Net segment revenue from other segments ................................................................(19,808) 1,026,032 (492,164) (520,396) 6,335 (0)
* Comparative information has been restated, reference is made to note 3 for further information.
The figures for the year 2022 have been restated to reflect changes made in the presentation of internal reporting and reportable segments as of 1
January 2023, and the discontinuation of insurance operations.
Consolidated Financial Statements 31 December 2023 22
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
5
Income statement
6. Net interest income
Interest expense is specified as follows:
7. Net fee and commission income
8. Net financial income
Interest income is specified as follows:2023 2022 Cash and balances with Central Bank .........................................................................................................................................1,697,958 1,001,738 Derivatives ..................................................................................................................................................................................1,571,640 2,422,309 Loans to customers .....................................................................................................................................................................15,315,986 9,520,831 Fixed income securities (FVOCI) ..................................................................................................................................................3,837,064 1,625,454 Other interest income .................................................................................................................................................................2,593 5,859 Total 22,425,240 14,576,190
* Thereof are lease liabilities' interest expense amounting to ISK 65 million (2022: ISK 96 million).
2023 2022 Deposits ......................................................................................................................................................................................8,442,963 2,971,531 Borrowings ..................................................................................................................................................................................1,885,625 1,354,360 Issued bonds ...............................................................................................................................................................................3,329,984 2,414,621 Subordinated liabilities ...............................................................................................................................................................529,637 518,940 Derivatives ..................................................................................................................................................................................144,031 95,360 Other interest expense* .............................................................................................................................................................72,271 136,429 Total 14,404,510 7,491,240 Net interest income 8,020,729 7,084,950
Total interest income recognised in respect of financial assets not carried at fair value through profit or loss amounts to ISK 16,840 million (2022: ISK
10,325 million). Total interest expense recognised in respect of financial liabilities not carried at fair value through profit or loss amounts to ISK 14,260
million (2022: ISK 7,396 million).
Fee income and expenses are presented on a net fee basis, as presented in internal reporting to management for decision making purposes and
broken down by business segments. The business segments are representative of the nature and types of activity from which the Group generates
fee income from. A description of each business segment is provided in note 5. As discussed in that note, the Group changed the structure of its
internal reporting and reportable segments, taking effect on 1 January 2023. The figures for the period in 2023 reflect this structure and the
comparison amounts have been restated accordingly.
Net fee and commission income by business segment2023 2022 Asset Management .....................................................................................................................................................................2,475,130 3,068,805 Commercial Banking ...................................................................................................................................................................1,373,071 969,612 Corporate Banking & Capital Markets ........................................................................................................................................1,577,910 1,976,767 UK operations .............................................................................................................................................................................474,892 349,492 Supporting units ..........................................................................................................................................................................15,445 48,992 Total 5,916,447 6,413,668
Net financial income is specified as follows:2023 2022Net gain (loss) on financial assets and financial liabilities mandatorily measured at fair value through profit or lossFixed income securities ............................................................................................................................................................(5,613) 116,957 Financial assets at fair value through OCI ................................................................................................................................(96,479) (47,330)Shares and other variable income securities ...........................................................................................................................397,168 765,138 Derivatives ...............................................................................................................................................................................431,731 (608,946)Loans to customers ..................................................................................................................................................................(170,882) (6,120)Foreign currency exchange difference ........................................................................................................................................(113,536) 58,660 Total 442,389 278,360
Consolidated Financial Statements 31 December 2023 23
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
5
9. Foreign currency exchange difference
Foreign currency exchange difference is specified as follows:
10. Administrative expenses
11. Salaries and related expenses
The amount of performance based payments that has been expensed is based on the results for the period in 2023 and the guidelines on
performance based payments set forth in the Group’s remuneration policy. The performance based payments have not been allocated to any
employees or business segments and are subject to approval by the Board of Directors.
During the year 2023, ISK 438 million in irregular and one-off costs were incurred by the Group, among other due to the resignation of the chief
executive officer, changes to the senior management and merger negotiations with Íslandsbanki hf. ISK 303 million, of that figure, is included in the
line salaries and related expenses in the table above.
According to Act No. 165/2011, passed in 2011, banks and other financial institutions providing VAT exempt services, must pay a tax based on salary
payments, called tax on financial activity. The current tax rate is 5.50% (2022: 5.50%).
Administrative expenses are specified as follows: 2023 2022 Salaries and related expenses ....................................................................................................................................................6,453,599 5,280,020 Other operating expenses ..........................................................................................................................................................3,221,595 2,610,181 Depositors' and Investors' Guarantee Fund contributions ........................................................................................................0 10,817 Depreciation and amortisation ...................................................................................................................................................900,191 929,836 Depreciation of right of use asset ...............................................................................................................................................209,299 260,679 Total 10,784,684 9,091,533
2023 2022 Gain on financial instruments at fair value through profit and loss ..........................................................................................49,333 180,774 Loss on other financial instruments ...........................................................................................................................................(162,869) (122,114)Total (113,536) 58,660
The 2022 figures for average number of employees and employees at year-end have been restated to exclude employees of TM. Further, the figures
for 2022 average number of full time employees do not include employees of Ortus Secured Finance ltd. during January and February 2022. At the
beginning of 2022, Ortus had 18 full time employees and Kvika and its subsidiaries, excl. TM, had 236, or 254 in total.
Salaries and related expenses are specified as follows:2023 2022 Salaries ........................................................................................................................................................................................4,862,337 3,948,054 Performance based payments excluding share-based payments ..............................................................................................175,326 137,225 Share-based payment expenses .................................................................................................................................................59,004 75,126 Pension fund contributions ........................................................................................................................................................655,913 563,074 Tax on financial activity ..............................................................................................................................................................277,969 241,397 Other salary related expenses ....................................................................................................................................................423,050 315,145 Total 6,453,599 5,280,020 Average number of full time employees during the year ..........................................................................................................280 251 Total number of full time employees at year-end ......................................................................................................................270 270
Consolidated Financial Statements 31 December 2023 24
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
5
12. Employment terms of the Board of Directors and management
13. Auditor's fees
Remuneration to the Group's auditors is specified as follows:
The members of the BOD owned, or controlled, 85,711 thousand shares at year-end 2023. The CEO owned, or controlled, 4,842 thousand shares and
options for 1,574 thousand shares in the Bank at year-end 2023. The members of the executive committee owned, or controlled, 28,747 thousand
shares and options for 7,670 thousand shares at year-end 2023.
Remuneration to the Board of Directors2023 2022 Board and Pension Board and Pension committee contribut- committee contribut- remunerat. ion Total remunerat. ion Total Sigurður Hannesson, Chairman of the Board and member of the Risk and Remuneration committees .......................................................18,709 2,806 21,516 17,300 2,595 19,894 Guðmundur Þórðarson, Deputy Chairman of the Board and chairperson of the Risk committee ........................................................14,382 2,140 16,521 12,247 1,937 14,184Guðjón Karl Reynisson, Board member and chairperson of the Remuneration committee ...................................................................10,684 1,603 12,287 9,564 1,435 10,999Helga Kristín Auðunsdóttir, Board member and member of the Audit and Remuneration committees ................................................16,124 2,366 18,489 12,112 1,808 13,920Ingunn Svala Leifsdóttir, Board member, chairperson of the Audit committee and member of the Risk committee ......................13,437 1,814 15,251 9,891 607 10,497 Helga Jóhanna Oddsdóttir, alternate Board member ...................................485 49 534 265 27 292 Sigurgeir Guðlaugsson, alternate Board member .........................................485 49 534 455 46 501 Total 74,306 10,826 85,132 61,833 8,454 70,287
The Bank has adopted a remuneration policy which covers three remuneration components, base pay, performance based incentive scheme and
other benefits, including pension fund contributions. Further information about the remuneration policy is provided in notes 66-68.
In August 2023 Ármann Þorvaldsson was hired as the Bank's CEO. In addition to a change in CEO, two other changes were made to the Bank's
executive committee. Besides the CEO, the following were a part of the Bank's executive committee during 2023: i) Sigurður Viðarson, Deputy CEO, ii)
Eiríkur Magnús Jensson, CFO, iii) Ólöf Jónsdóttir, MD of Commercial Banking (until December), iv) Bjarni Eyvinds, MD Corporate Banking & Capital
Markets, v) Lilja Jensen, General Counsel, vi) Anna Rut Ágústsdóttir, MD Operations and Development, vii) Thomas Skov Jensen, MD Risk
Management (until September) and viii) Elísabet G. Björnsdóttir, MD Risk Management (from October). As at the date of these Consolidated Financial
Statements, the hiring process for MD of Commercial Banking had not been completed.
As the resignation of the MD of Commercial Banking was received in December, she is included in the figure for salaries and benefits for 2023 for
managing directors, but not counted as managing director at year end.
As a result of the aforementioned, the salaries and benefits figures for managing directors for 2023 and 2022 are not directly comparable.
Expensed notice payments include payments during notice period for the CEO and members of executive committee, as applicable, which left the
Group during the respective year.
ISK 56 million (2022: ISK 41 million).
Salaries and benefits paid to the Board of Directors, the CEO and Managing Directors, including the Deputy CEO, of the Bank for their work for
companies within the Group are specified as follows:
2023 2022 Audit of annual accounts ............................................................................................................................................................184,627 134,150 Review of interim accounts ........................................................................................................................................................27,130 26,471 Other audit related services .......................................................................................................................................................18,734 19,161 Total 230,491 179,782 Thereof to the auditors of the Bank ...........................................................................................................................................174,166 139,241 The table above shows fees paid to Deloitte and other component auditors. Total fee paid to other component auditors for the year 2023 amounts to
Remuneration to the CEO and executive committee2023 2022 Performance Pension Performance Pension Salaries and based contribut- Salaries and based contribut- benefits payments ion Total benefits payments ion Total Ármann Þorvaldsson, CEO ...........................................20,685 2,000 3,051 25,735 0 0 0 0 Marinó Örn Tryggvason, former CEO ..........................32,653 0 4,870 37,524 50,397 1,950 7,313 59,659 Managing Directors (2023: 6 (on average 7.0),2022: 4 (on average: 5.5)) ............................................ 273,049 10,000 39,241 322,290 233,054 6,242 32,064 271,360 Former Managing Directors (2023: 1 (on average 0.8), 2022: 2 (on average: 0.5)) ................28,325 0 3,810 32,135 19,950 0 2,700 22,650 Expensed notice payments ..........................................86,700 0 12,420 99,120 57,075 0 7,830 64,905 Total 441,412 12,000 63,392 516,804 360,476 8,192 49,907 418,574
Consolidated Financial Statements 31 December 2023 25
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
5
15. Income tax
Income tax recognized in the income statement is specified as follows:
16. Special tax on financial activity
17. Special tax on financial institutions
18. Earnings per share
The calculation of basic earnings per share is based on earnings attributable to shareholders and a weighted average number of shares outstanding
during the period. The diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares. The Bank has issued stock options that have a dilutive effect.
According to Act No. 155/2010 on Special Tax on Financial Institutions, certain types of financial institutions, including banks, must pay annually a tax
based on the carrying amount of their liabilities as determined for tax purposes in excess of ISK 50 billion at year-end. The tax rate is set at 0.145%
(2022: 0.145%) and the tax is not a deductible expense for income tax purposes. The tax is presented separately in the consolidated income
statement.
The special tax on financial activity is an additional income tax which becomes effective when the income tax base exceeds ISK 1,000 million. It is
levied on the same entities as the tax on financial activity according to Act No. 90/2003. The tax rate is set at 6.0% (2022: 6.0%) and the tax is not a
deductible expense for income tax purposes. The tax is presented separately in the consolidated income statement.
Profit before tax amounts to ISK 3,009 million. Income tax amounts to ISK -390 million, resulting in an effective tax rate of 13.0%. This is substantially
different from the Icelandic corporate tax rate of 20%, mainly due to non-taxable income from shares.
Reconciliation of effective tax rate:2023 2022 Profit before tax ..................................................................................................................................3,009,001 4,802,611 Income tax using the domestic corporation tax rate .........................................................................20.0% (601,800) 20.0% (960,522) Non-deductible expenses ...................................................................................................................1.0% (29,372) 0.2% (7,457) Tax exempt revenues / loss ................................................................................................................(7.5%) 225,272 13.5% (647,958) Recognition of tax losses ....................................................................................................................0.0% 0 (36.4%) 1,747,062 Other changes .....................................................................................................................................(0.5%) 16,226 1.8% (85,869)Effective income tax 13.0% (389,673) (0.9%) 45,255
The Bank and some of its subsidiaries will not pay income tax on its profit for 2023 due to the fact that Group has a tax loss carry forward that offsets
the calculated income tax. At year-end 2023, the tax loss carry forward of the Group amounted to ISK 13.0 billion. A substantial part of the tax loss
carry forward is utilisable until end of year 2028. Management is of the opinion that the Group's operations in the years to come will result in taxable
results which will be offset with the tax loss carry forward. The Group has therefore recognised the tax loss carry forward as a deferred tax asset in
the consolidated statement of financial position.
Income tax is recognised based on the tax rates and tax laws enacted during the current year, according to which the domestic corporate income tax
rate was 20.0% (2022: 20.0%). Companies within the Group, which operate outside of Iceland, recognise income tax in accordance with the applicable
tax laws in the country where they are resident.
14.Net impairment2023 2022 Net change in impairment of loans ............................................................................................................................................(1,025,266) (525,554) Net change in impairment of other assets .................................................................................................................................506 (35,911) Net change in impairment of loan commitments, guarantees and unused credit facilities ......................................................(2,729) (5,857)Total (1,027,489) (567,322)
Continuing Discontinued Continuing and operationsoperationsdiscontinued operations2023 2022 2023 2022 2023 2022Net earnings attributable to equity holders of the Bank 2,288,115 4,322,690 1,730,389 560,255 4,018,503 4,882,945 Weighted average number of outstanding shares ........................4,757,742 4,786,389 4,757,742 4,786,389 4,757,742 4,786,389 Adjustments for stock options .......................................................279 506 279 506 279 506 Total 4,758,021 4,786,894 4,758,021 4,786,894 4,758,021 4,786,894 Basic earnings per share (ISK) ........................................................0.48 0.90 0.36 0.12 0.84 1.02 Diluted earnings per share (ISK) ....................................................0.48 0.90 0.36 0.12 0.84 1.02
Consolidated Financial Statements 31 December 2023 26
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
18
Statement of Financial Position
19. Cash and balances with Central Bank
Cash and balances with Central Bank are specified as follows:
20. Fixed income securities
Fixed income securities are specified as follows:
21. Shares and other variable income securities
Shares and other variable income securities are specified as follows:
22. Securities used for hedging
31.12.2023 31.12.2022 Deposits with Central Bank ................................................................................................................................................13,479,131 24,718,270 Cash on hand ......................................................................................................................................................................20,055 22,822 Balances with banks ...........................................................................................................................................................6,356,998 7,391,501 Foreign treasury bills ..........................................................................................................................................................0 2,831,108 Included in cash and cash equivalents19,856,184 34,963,701 Restricted balances with Central Bank - fixed reserve requirement .................................................................................3,825,269 1,706,885 Total 23,681,453 36,670,586
The Bank holds mandatory reserve deposit accounts with the Central Bank of Iceland in compliance with the Central Bank’s Rules on Minimum
Reserve Requirements No. 585/2018. Under these rules the reserve requirement is divided into two parts: a fixed reserve requirement bearing no
interest and an average maintenance level requirement bearing the same interest as that on deposit-taking institutions’ current accounts with the
Central Bank. The mandatory reserve deposit with the Central Bank and the receivables from the Central Bank are not available for the Group to use
in its daily operations.
Mandatorily measured at fair value through profit or loss 31.12.2023 31.12.2022 Listed government bonds and bonds with government guarantees ............................................................................ 2,515,820 2,867,887 Listed bonds ................................................................................................................................................................... 1,053,955 3,456,180 Unlisted bonds ............................................................................................................................................................... 114,075 3,901,728 Measured at fair value through other comprehensive incomeListed government bonds and bonds with government guarantees ............................................................................ 45,067,483 38,347,272 Listed treasury bills ........................................................................................................................................................ 14,675,118 12,864,314 Listed bonds ................................................................................................................................................................... 1,550,955 3,723,026 Total 64,977,406 65,160,407
Mandatorily measured at fair value through profit or loss 31.12.2023 31.12.2022 Listed shares ................................................................................................................................................................... 512,703 4,879,257 Unlisted shares ............................................................................................................................................................... 2,027,673 7,325,211 Unlisted unit shares in bond funds ................................................................................................................................ 0 3,040,899 Unlisted unit shares in other funds ................................................................................................................................ 1,317,103 4,165,141 Total 3,857,480 19,410,508
Securities used for hedging are specified as follows:31.12.2023 31.12.2022 Listed government bonds and bonds with government guarantees ................................................................................ 1,201,377 3,852,697 Listed bonds .......................................................................................................................................................................955,948 896,385 Listed shares .......................................................................................................................................................................14,258,492 8,925,858 Listed unit shares ...............................................................................................................................................................7,501 0 Unlisted unit shares ...........................................................................................................................................................428,995 166,914 Total 16,852,313 13,841,853
Consolidated Financial Statements 31 December 2023 27
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
18
23. Loans to customers
24. Derivatives
The hedging gain recognised in OCI before tax is equal to the change in fair value used for measuring effectiveness. There is no ineffectiveness
recognised in profit or loss.
Set out below is the reconciliation of Foreign currency translation reserve component of equity due to hedge accounting and the analysis of other
comprehensive income:
31.12.2023 31.12.2022 Balance at the beginning of the year .................................................................................................................................0 0 Foreign currency revaluation of the net foreign operations .............................................................................................(65,695) 0 Tax effect ............................................................................................................................................................................13,139 0 Total (52,556) 0
The Group presents finance lease receivables as part of loans to customers at amortised cost. As at 31 December 2023, the book value of finance
lease receivables amounted to ISK 21,504 million (31.12.2022: ISK 18,604 million).
Derivatives are specified as follows:
Notional Carrying amount 31.12.2022 Assets Liabilities Assets Liabilities Interest rate derivatives ............................................................................................9,494,772 7,722,424 1,774,759 0 Currency forwards ....................................................................................................25,007,309 25,007,681 282,893 360,113 Bond and equity total return swaps .........................................................................29,475,867 28,082,769 2,637,546 1,249,424 Equity options ...........................................................................................................104,499 0 245,539 0 Total 64,082,448 60,812,874 4,940,738 1,609,537
The breakdown of the loan portfolio by individuals and corporates is specified as follows:
IndividualsCorporatesTotalGross Gross Grosscarrying Book carrying Book carrying Book 31.12.2022 amount value amount value amount valueLoans to customers at amortised cost ........................38,691,137 37,938,073 69,891,033 67,990,764 108,582,170 105,928,837 Loans to customers at FV through profit or loss .........46,291 46,291 1,164,100 1,164,100 1,210,390 1,210,390 Total 38,737,428 37,984,363 71,055,132 69,154,864 109,792,560 107,139,227
IndividualsCorporatesTotalGross Gross Grosscarrying Book carrying Book carrying Book 31.12.2023 amount value amount value amount valueLoans to customers at amortised cost ........................39,375,650 38,386,498 98,484,058 97,254,551 137,859,708 135,641,049 Loans to customers at FV through profit or loss .........58,634 58,634 623,799 623,799 682,433 682,433 Total 39,434,283 38,445,131 99,107,858 97,878,350 138,542,141 136,323,481
Notional Carrying amount 31.12.2023 Assets Liabilities Assets Liabilities Interest rate derivatives ............................................................................................22,573,886 21,401,149 940,860 0 Currency forwards ....................................................................................................38,881,527 34,034,527 461,388 121,213 Currency forwards used for hedge accounting ........................................................0 4,855,756 0 152,182 Bond and equity total return swaps .........................................................................17,837,698 18,895,783 880,434 1,923,509 Equity options ...........................................................................................................0 0 215,196 0 Total 79,293,112 79,187,216 2,497,877 2,196,904
Consolidated Financial Statements 31 December 2023 28
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
18
25. Group entities
26. Investment in associates
a. Investment in associates is accounted for using the equity method and is specified as follows:
27. Investment properties
b. Changes in investments in associates are specified as follows: 31.12.2023 31.12.2022 Balance at the beginning of the year .................................................................................................................................88,988 67,000 Dividend received ..............................................................................................................................................................(27,493) (6,087) Share in profit of associates, net of income tax ................................................................................................................35,756 26,725 Exchange rate difference ...................................................................................................................................................(1,057) 1,350 Total 96,194 88,988
The Group does not consider its associates material, neither individually nor as a group.
Share Share Entity Nature of operations Domicile 31.12.2023 31.12.2022 Gláma fjárfestingar slhf. .............................................Holding companyIceland 24% 24% Moberg d. o. o. ...........................................................Digital solutions providerCroatia 40% 40%
Investment properties are specified as follows: 31.12.2023 31.12.2022 Balance at the beginning of the year .................................................................................................................................1,165,398 1,100,000 Additions ............................................................................................................................................................................15,134 0 Revaluation of investment properties ...............................................................................................................................59,602 65,398 Reclassified as assets held for sale ....................................................................................................................................(1,240,134) 0 Total 0 1,165,398
The discontinuation of its insurance subsidiary of TM tryggingar hf. resulted in Investment properties to be categorized as assets held for sale. Refer
to note 4 for more information on the discontinued operations.
* At 31 December 2023 TM tryggingar hf., Rafklettur ehf. and TM líftryggingar were classified as a disposal group held for sale in accordance with IFRS
5.
Share Share Entity Nature of operations Domicile 31.12.2023 31.12.2022 FÍ Fasteignafélag GP ehf. ............................................Real estate fund management Iceland 100% 100% GAMMA Capital Management hf. ..............................Fund management Iceland 100% 100% Kvika eignastýring hf. .................................................Asset management Iceland 100% 100% * Rafklettur ehf. ..........................................................Holding company Iceland 100% 100% Skilum ehf. ..................................................................Debt Collection Iceland 100% 100% Straumur greiðslumiðlun hf. ......................................Payment facilitatorIceland 100% 100% * TM líftryggingar hf. ..................................................Insurance company Iceland 100% 100% * TM tryggingar hf. .....................................................Insurance company Iceland 100% 100% AC GP 3 ehf. ................................................................Fund managementIceland 85% 80% Kvika Securities ltd. .....................................................Business consultancy servicesUK 100% 100% Ortus Secured Finance ltd. .........................................Lending operationsUK 78% 78%
The main subsidiaries held directly or indirectly by the Group are listed in the table below.
Consolidated Financial Statements 31 December 2023 29
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
18
28. Intangible assets
) (1,116,329)
835,246
b. Impairment testing
Assets with indefinite useful life, such as goodwill, are not amortised but are subject to annual impairment testing as described in note 93. Goodwill is
allocated to cash generating units ("CGUs") for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are
expected to benefit from the business combinations in which the goodwill arose. Goodwill has been allocated to four CGUs, Asset Management,
Commercial Banking, Corporate Markets & Capital Markets and UK operations. The goodwill allocated to UK operations, following business
combinations during the year 2022, was a based on a preliminary estimate. The allocation was finalised during the year 2023 with no changes being
made. At the beginning of 2023, Investment Banking was renamed Corporate Banking & Capital Markets, as further outlined in note 1.
The goodwill impairment tests were performed at the end of 2023. Their results show that the recoverable values exceed the carrying values of
goodwill. In addition to the base case testing, additional scenarios were tested where some key inputs had been stressed. In all scenarios tested the
results show that there is sufficient headroom and that there are no triggers indicating that impairment is necessary.
The discontinuation of the subsidiary TM tryggingar hf. resulted in goodwill, customer relationships, brands, software and other intangible assets to
be categorized as assets held for sale. Reference is made to note 4 for further information on the discontinued operations.
The cash flow projections for 2023 are derived from the Group's three year business plan which has been approved by the Board of Directors. In
some instances, the Group's subsidiaries have prepared a three year business plan which has been approved by the Board of Directors of those
companies. Management prepares a five year cash flow projection for each CGU, which is derived from the three year business plan and is also based
on management assumptions. The following table shows the key assumptions used in the estimation of the recoverable amount. The recoverable
amounts are calculated by discounting the estimated future growth rate of the CGUs. The time value of money and price of uncertainty are based on
external market information about market risk, interest rates and CGU specific elements like country risk.
Future Discount31.12.2023 growth rate rateBook value Asset Management ...................................................................................................................................3.5% 12.1%2,943,881 Commercial Banking .................................................................................................................................3.5% 11.3%11,826,735 Corporate Banking & Capital Markets ......................................................................................................3.5% 12.1%1,199,761 UK operations ............................................................................................................................................3.5% 9.4%1,812,268 Total goodwill 17,782,646
Future Discount31.12.2022 growth rate rateBook value Asset Management ...................................................................................................................................3.5% 13.1%2,943,881 Commercial Banking .................................................................................................................................3.5% 11.3%11,826,735 Investment Banking ..................................................................................................................................3.5% 13.7%1,199,761 UK operations ............................................................................................................................................3.5% 9.8%1,771,221 Insurance (Reclassified as assets held for sale) ........................................................................................3.5% 12.1%8,300,327 Total goodwill 26,041,926
a. Intangible assets are specified as follows: Customer Software 31.12.2023 Goodwill relationships Brands and other Total Balance as at 1 January 2023 ..........................................................26,041,926 2,838,993 2,276,484 2,922,498 34,079,900 Additions during the period ............................................................0 315,558 0 1,224,158 1,539,716 Discontinued ...................................................................................0 0 0 (20,338) (20,338) Amortisation ....................................................................................0 (262,726) (152,986) (700,617 Reclassified as assets held for sale ..................................................(8,300,327) (1,160,429) (1,859,875) (1,294,732) (12,615,363) Currency adjustments .....................................................................41,046 509 705 (3,484) 38,776 Balance as at 31 December 2023 17,782,646 1,731,905 264,327 2,127,485 21,906,363 Gross carrying amount ....................................................................17,782,646 2,095,815 369,096 3,617,923 23,865,479 Accumulated amortisation and impairment losses ........................0 (363,910) (104,769) (1,490,438) (1,959,116)Balance as at 31 December 2023 17,782,646 1,731,905 264,327 2,127,485 21,906,363
Customer Software 31.12.2022 Goodwill relationships Brands and other Total Balance as at 1 January 2022 ..........................................................24,257,972 2,255,810 2,340,265 2,601,362 31,455,409 Additions during the period ............................................................0 0 0 835,246 Additions through business combinations .....................................1,771,221 812,437 84,629 0 2,668,287 Discontinued ...................................................................................0 0 0 (7,737) (7,737) Amortisation ....................................................................................0 (235,264) (148,761) (506,374) (890,399) Currency adjustments .....................................................................12,732 6,011 351 0 19,095 Balance as at 31 December 2022 26,041,926 2,838,993 2,276,484 2,922,497 34,079,900 Gross carrying amount ....................................................................26,041,926 3,210,439 2,524,768 4,105,486 35,882,618 Accumulated amortisation and impairment losses ........................0 (371,446) (248,284) (1,182,988) (1,802,718)Balance as at 31 December 2022 26,041,926 2,838,993 2,276,484 2,922,498 34,079,900
Consolidated Financial Statements 31 December 2023 30
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
18
29. Operating lease assets
Operating lease assets are specified as follows:
31. Other assets
Other assets are specified as follows:
* Comparative information has been restated, reference is made to note 3 for further information.
Right of use asset and lease receivables are specified as follows:
32. Deposits
Deposits are specified as follows:
Right of use asset and lease receivables mostly consist of real estates for the Group's own use. The Group has entered into sublease contracts for
parts of the real estates which it does not use for its operations.
31.12.2023 31.12.2022 Balance as at 1 January ......................................................................................................................................................884,222 1,458,621 Additions ............................................................................................................................................................................63,792 133,883 Disposals .............................................................................................................................................................................(257,979) (470,876) Depreciation .......................................................................................................................................................................(159,891) (237,406)Total 530,144 884,222 Gross carrying amount .......................................................................................................................................................1,116,581 1,505,807 Accumulated depreciation .................................................................................................................................................(586,437) (621,585)Total 530,144 884,222
The Group's deferred tax assets (liabilities) are attributable to the following items:
At year end 2023, tax losses carried forward amount to ISK 13.0 billion, and are set to expire as follows:Tax losses Tax losses 2018, expiring in 2028 ................................................................................................................................................................12,050,371 Tax losses 2020, expiring in 2030 ................................................................................................................................................................909,209 Total 12,959,579
31.12.2023 31.12.2022* Unsettled transactions .......................................................................................................................................................2,262,226 4,443,719 Accounts receivable ...........................................................................................................................................................6,342,227 4,675,780 Right of use asset and lease receivables ............................................................................................................................1,320,983 1,576,582 Investments where investment risk is borne by life-insurance policyholders ..................................................................0 121,906 Sundry assets ......................................................................................................................................................................475,693 1,065,503 Total 10,401,128 11,883,489
31.12.2023 31.12.2022 Property and equipment ....................................................................................................................................................71,166 32,677 Intangible assets .................................................................................................................................................................(2,302) (644,801) Other items ........................................................................................................................................................................(30,814) (274,934) Tax losses carried forward .................................................................................................................................................2,591,916 3,175,718 Total 2,629,966 2,288,659
30. Deferred tax assets and liabilities 31.12.2023 31.12.2022 Deferred tax assets .............................................................................................................................................................2,902,580 3,232,933 Deferred tax liabilities ........................................................................................................................................................(272,615) (944,274)Net 2,629,966 2,288,659
31.12.2023 31.12.2022 Demand deposits ...............................................................................................................................................................113,625,055 91,504,652 Time deposits .....................................................................................................................................................................20,147,887 20,740,545 Total 133,772,941 112,245,198
31.12.2023 31.12.2022 Right of use asset and lease receivables as at 1 January ...................................................................................................1,576,582 800,087 Additions during the period ...............................................................................................................................................0 935,915 Termination of lease agreements ......................................................................................................................................0 (26,458) Indexation ..........................................................................................................................................................................77,713 128,709 Currency adjustments ........................................................................................................................................................2,655 5,247 Depreciation and lease receivable instalment ..................................................................................................................(335,967) (266,917)Total 1,320,983 1,576,582
Consolidated Financial Statements 31 December 2023 31
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2023
32
Notes to the Consolidated Financial Statements
33.
Borrowings
Borrowings are specified as follows:
31.12.2023 31.12.2022 Money market deposits ..................................................................................................................................................... 8,792,963 9,778,280 Secured borrowings ........................................................................................................................................................... 13,691,834 15,674,280 Other borrowings ............................................................................................................................................................... 1,332,264 2,667,449 Total 23,817,062 28,120,009
Money market deposits typically have a principal of ISK 5-500 million and maturity between 1 day and 6 months and pay fixed interest rates. Secured
borrowings are in GBP and are to be paid at maturity. The borrowings mature in 2028.
The Group has not had any defaults of principal, interest or other breaches with respect to its debt issued and other borrowed funds.
34.
Issued bonds
Issued bonds are specified as follows:
35.
Subordinated liabilities
a.
Subordinated liabilities:
First Maturity Currency, nominal value issued Maturity type Terms of interest 31.12.2023 31.12.2022 KVB 18 02, ISK 800 million .................. 2018 2028 At maturity CPI-Indexed, fixed 7.50% 1,123,778 1,040,313 KVIKA 34 1211 T2i, ISK 2,000 m. ......... 2023 2034 At maturity CPI-Indexed, fixed 6.25% 2,011,434 0 TM 15 1, ISK 2,000 million .................. 2015 2045 At maturity CPI-Indexed, fixed 5.25% 2,857,872 2,646,139 Total 5,993,084 3,686,451
For KVB 18 02, the Group has the right to repay the subordinated bond on any interest payment dates until maturity. In January 2024, the Group gave
notice to holders of the bond that they will be redeemed in full on the next interest payment date, 8 May 2024.
At the interest payment date in May 2025 for TM 15 01, the annual interest rate increases from 5.25% p.a. to 6.25% p.a. At the interest payment date
in May 2025 for TM 15 01, the Group has the right to repay the subordinated bond and on any subsequent interest payment dates until maturity.
At the interest payment date in the year 2029 for KVIKA 34 1211 T2i, the Group has the right to repay the subordinated bond and on any subsequent
interest payment dates until maturity.
Subordinated liabilities are financial liabilities in the form of subordinated capital which, in case of the Group's voluntary or compulsory winding-up,
will not be repaid until after the claims of ordinary creditors have been met. In the calculation of the capital ratio, they are included within Tier 2 and
are a part of the equity base. The amount eligible for Tier 2 capital treatment is amortised on a straight-line basis over the final 5 years to maturity or
up to 20% a year. The Group may only retire subordinated liabilities with the permission of the FME.
2
First Maturity Currency, nominal value issued Maturity type Terms of interest 31.12.2023 31.12.2022 Unsecured bonds: KVB 21 01, GBP 12 million .................. 2021 2023 At maturity Floating, 3 month LIBOR + 2.50% 0 2,067,377 KVB 20 01, ISK 5,000 million ............... 2020 2023 At maturity Floating, 1 month REIBOR + 0.85% 0 4,632,806 Lykill 23 11, ISK 3,010 million ............. 2020 2023 At maturity Floating, 1 month REIBOR + 1.10% 0 2,600,598 EMTN 24 0131, SEK 500 million ......... 2022 2024 At maturity Floating, 3 month STIBOR + 2.80% 4,610,572 6,866,708 EMTN 24 0204, EUR 8.5 million ......... 2022 2024 At maturity Floating, 3 month EURIBOR + 2.80 1,292,489 1,296,978 KVIKA 24 1119, GBP 11.4 million ....... 2021 2024 At maturity Floating, 3 month LIBOR + 1.75% 1,990,376 1,959,110 KVIKA 24 1216 GB, ISK 4,500 million .. 2021 2024 At maturity Floating, 3 month REIBOR + 0.90% 4,517,330 4,513,777 KVB 19 01, ISK 5,000 million ............... 2019 2024 Amortizing Floating, 1 month REIBOR + 1.50% 1,003,675 2,005,242 KVIKA 25 1201 GB ISK 1,660 million ... 2022 2025 At maturity Floating, 3 month REIBOR + 1.25% 1,675,442 1,670,790 EMTN 26 0511, SEK 275 million .......... 2023 2026 At maturity Floating, 3 month STIBOR + 4.10% 3,770,724 0 EMTN 26 0511, NOK 800 million ........ 2023 2026 At maturity Floating, 3 month NIBOR + 4.10% 10,837,164 0 EMTN 23 11 26, SEK 500 m. ................ 2023 2026 At maturity Floating, 3 month STIBOR + 4% 6,839,052 0 KVB 21 02, ISK 5,400 million ............... 2021 2027 At maturity CPI-indexed, fixed 1.0% 6,599,359 6,110,428 KVIKA 32 0112, ISK 2,000 million ........ 2022 2032 At maturity CPI-indexed, fixed 1.40% 2,373,037 2,197,224 Asset backed bonds: Lykill 16 01, ISK 10,870 million ........... 2016 2023 Amortizing Floating, 1 month REIBOR + 1.10% 0 1,368,276 Lykill 23 09, ISK 1,000 million ............. 2019 2023 Amortizing Fixed, 5.20% 0 204,013 Lykill 24 06, ISK 1,570 million ............. 020 2024 Amortizing Fixed, 2.80% 206,206 610,086 Total 45,715,427 38,103,414
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2023
33
Notes to the Consolidated Financial Statements
b. Subordinated liabilities are specified as follows:
31.12.2023 31.12.2022 Balance at the beginning of the year ................................................................................................................................. 3,686,451 3,371,766 Additions ............................................................................................................................................................................ 2,000,000 0 Paid interest ....................................................................................................................................................................... (164,833) (164,833) Paid interests due to indexation ........................................................................................................................................ (58,171) (39,421) Accrued interests and indexation ...................................................................................................................................... 529,637 518,940 Total 5,993,084 3,686,451
36.
Short positions held for trading
Short positions held for trading are specified as follows: 31.12.2023 31.12.2022 Listed government bonds and bonds with government guarantees ................................................................................ 60,081 970,178 Listed bonds ....................................................................................................................................................................... 71,664 515,929 Total 131,745 1,486,107
37.
Short positions used for hedging
Short positions used for hedging are specified as follows: 31.12.2023 31.12.2022 Listed government bonds and bonds with government guarantees ................................................................................ 4,230 1,343,186 Total 4,230 1,343,186
38.
Other liabilities
Other liabilities are specified as follows:
31.12.2023 31.12.2022* Accounts payable and accrued expenses .......................................................................................................................... 9,326,840 2,116,731 Unsettled transactions ....................................................................................................................................................... 2,396,243 1,970,758 Lease liability ...................................................................................................................................................................... 1,510,333 1,827,582 Salaries and salary related expenses ................................................................................................................................. 1,136,312 1,265,867 Withholding taxes .............................................................................................................................................................. 1,130,048 781,845 Special taxes on financial institutions and financial activities ........................................................................................... 304,045 494,455 Contingent consideration .................................................................................................................................................. 404,762 373,715 Insurance contracts for life-insurance policies where investment risk is borne by policyholders ................................... 0 121,906 Expected credit loss allowance for loan commitments, guarantees and unused credit facilities .................................... 15,673 12,935 Other liabilities ................................................................................................................................................................... 369,737 772,743 Total 16,593,993 9,738,535
* Comparative information has been restated, reference is made to note 3 for further information.
Lease liability is specified as follows:
31.12.2023 31.12.2022 Lease liability as at 1 January ............................................................................................................................................. 1,827,582 1,041,121 Additions during the period ............................................................................................................................................... 0 1,054,121 Termination of lease agreements ...................................................................................................................................... 0 (14,428) Currency adjustments ........................................................................................................................................................ 4,639 7,554 Instalment .......................................................................................................................................................................... (424,085) (410,412) Indexation .......................................................................................................................................................................... 102,198 149,626 Total 1,510,333 1,827,582
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
18
39. Share capital
a. Share capital
b. Changes made to the nominal amount of share capital
c. Share capital increase authorisations
40. Solvency of a financial conglomerate
Solvency ratio of the Group as a financial conglomerate is specified as follows:
Temporary provision II to the Articles of Association authorises the Board of Directors to increase the share capital of the Bank in stages by up to ISK
70 million in nominal value, for the purposes of fulfilling stock option agreements in accordance with the Bank's stock option plan which has been
approved by Iceland Revenue and Customs as provided for in Art. 10 of the Income Tax Act, No. 90/2003. This authorisation is valid until 31 December
2024.
A copy of the Bank's Articles of Association, including the temporary provisions, is available on the Bank's website, www.kvika.is, reference is made to
them for more information.
Solvency measures the Group's ability to take on setbacks, thus indicating its financial strength. The available capital and capital requirements of the
Group is calculated as a financial conglomerate according to Articles 16, 17 and 18 of Act on Additional Supervision of Financial Conglomerates No.
61/2017. The Group's solvency ratio is 1.25, with a regulatory minimum requirement of 1.0.
The FME has designated the Group as a financial conglomerate as defined in Article no. 3 of Act no. 61/2017 on Additional Supervision of Financial
Conglomerates. As a result of this designation, the Group's capital adequacy is calculated as the solvency ratio of a financial conglomerate. The Group
furthermore calculates the consolidated capital adequacy ratio for entities not belonging to the insurance sector by excluding the insurance activities
from calculation of risk weighted exposures and capital base. The Group similarly calculates the solvency ratio of entities solely belonging to the
insurance sector. In 2023, the Group introduced a change in treatment of deductions from capital base due to significant holdings in financial
institutions and deferred tax assets. The calculations now take into account article 48 of the Capital Requirements Regulation no. 575/2013 of the EU.
Temporary provision III to the Articles of Association authorises the Board of Directors to issue options or warrants for up to ISK 240 million in
nominal value. To serve such instruments the Board of Directors is authorised to either increase the share capital accordingly or purchase own shares,
as permitted by law. This authorisation is valid until 31 March 2027.
The nominal value of shares issued by the Bank is ISK 1 per share. All currently issued shares are fully paid. The holders of shares are entitled to
receive dividends as approved by the general meeting and are entitled to one vote per nominal value of ISK 1 at shareholders' meetings. Reference is
made to the Bank's Articles of Association for more information about the share capital.
During the year 2023 the Bank's share capital was decreased by ISK 148 million in nominal value following a resolution by the AGM to cancel treasury
shares. Furthermore, during the year, the Bank has acquired treasury shares amounting to ISK 59 million in nominal value as a result of a share buy-
back plan.
According to the Bank's Articles of Association dated 30 March 2023, the Board of Directors is authorised to increase the share capital as follows:
31.12.2023 31.12.2022Available capital Own Funds eligible for non insurance activities ................................................................................................................39,117,918 32,456,104 Own Funds eligible for insurance activities .......................................................................................................................14,754,678 13,094,779 Deduction from own funds not eligible .............................................................................................................................(3,687,860) 0 Total 50,184,737 45,550,883 Solvency requirement for insurance activities Solvency Capital Requirements (SCR) ................................................................................................................................9,622,063 8,772,791 Own funds requirement for non insurance activities Statutory minimum capital requirement (Pillar I) ..............................................................................................................13,826,577 11,037,600 Additional capital requirements (Pillar II) ..........................................................................................................................6,913,288 4,828,950 Minimum capital requirement for non insurance activities 20,739,865 15,866,550 Additional capital protection buffers .................................................................................................................................11,579,758 8,830,080 Adjustments to capital requirements in conglomerate .....................................................................................................(1,724,074) 0 Total 30,595,549 24,696,631 Solvency .............................................................................................................................................................................50,184,737 45,550,883 Solvency requirement (SCR) ...............................................................................................................................................9,622,063 8,772,791 Own funds requirement for non insurance activities ........................................................................................................30,595,549 24,696,631 Minimum solvency of financial conglomerate ..................................................................................................................40,217,612 33,469,422 Solvency ratio .....................................................................................................................................................................1.25 1.36
31.12.2023 31.12.2022 Share capital according to the Bank's Articles of Association ...........................................................................................4,781,026 4,928,897 Nominal amount of treasury shares ..................................................................................................................................58,952 147,871 Authorised but not issued shares ......................................................................................................................................310,000 310,000
Consolidated Financial Statements 31 December 2023 34
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
18
41. Capital adequacy ratio (CAR)
* Comparative information has been restated, reference is made to note 3 for further information.
TM tryggingar hf. has been classified as a disposal group held for sale and as a discontinued operation. This does not affect the Group‘s capital
adequacy calculation. Nonetheless, assuming a cash sale of the subsidiary, the Bank’s capital would increase. To what extent the capital adequacy
ratio would increase depends on the sale price and whether the company will be sold in part or in full.
The Icelandic Financial Supervisory Authority (FME) supervises the Bank on a consolidated basis and, as such, receives information on the capital
adequacy of, and sets capital requirements for, the Bank as a whole. The Bank's regulatory capital calculations for credit risk and market risk are
based on the standardised approach and the capital calculations for operational risk are based on the basic indicator approach.
Minimum capital requirement is based on the Bank's Internal Capital Adequacy Assessment Process (ICAAP) and is reviewed by the FME through the
Supervisory Review and Evaluation Process (SREP). The Bank's minimum regulatory capital requirement, based on SREP from 2023 is 12.0%. The
minimum regulatory capital requirement including the additional capital buffers is 18.7% as at 31 December 2023.
The capital adequacy ratio of the Group, excluding entities which belong to the insurance sector, calculated in accordance with Article 84 of Act No.
161/2002 on Financial Undertakings, was 22.6%. The minimum requirement from the FME is 12.0%. The ratio is calculated as follows:
Own funds eligible for non insurance activities 31.12.2023 31.12.2022* Total equity ........................................................................................................................................................................81,957,804 81,089,180 Expected dividends and buy-back according to dividend policy .......................................................................................(1,004,626) (1,912,410)Capital eligible as CET1 Capital 80,953,178 79,176,769 Goodwill and intangibles ...................................................................................................................................................(29,040,706) (28,380,760) Shares in other financial institutions .................................................................................................................................(16,420,475) (18,728,749) Deferred tax asset ..............................................................................................................................................................(1,559,045) (3,232,933)Common equity Tier 1 capital (CET 1) 33,932,952 28,834,327 Tier 2 capital .......................................................................................................................................................................5,915,278 3,621,777 Deductions from Tier 2 capital ...........................................................................................................................................(730,312) 0 Total own funds 39,117,918 32,456,104 Risk weighted exposures Credit risk ...........................................................................................................................................................................142,648,209 109,104,748 Market risk .........................................................................................................................................................................3,082,235 4,091,761 Operational risk ..................................................................................................................................................................27,101,765 24,773,495 Total risk weighted exposures 172,832,209 137,970,004 Capital ratios Capital adequacy ratio (CAR) .............................................................................................................................................22.6% 23.5% CET1 ratio ...........................................................................................................................................................................19.6% 20.9% Minimum Capital adequacy ratio requirement .................................................................................................................12.0% 11.5% Minimum Capital adequacy ratio requirement including supervisory buffers .................................................................18.7% 17.9% Minimum CET 1 ratio requirement including supervisory buffers ....................................................................................13.5% 12.9%
Consolidated Financial Statements 31 December 2023 35
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
18
42. Solvency of insurance activities
At 31 December 2023, the insurance operation was classified as a disposal group held for sale and as a discontinued operation.
* Comparative information has been restated, reference is made to note 3 for further information.
43. Leverage ratio
31.12.2023 31.12.2022* Own funds eligible for insurance activities solvency Equity eligible for insurance activities ...............................................................................................................................19,811,796 18,268,799 Goodwill and intangibles ...................................................................................................................................................(5,527,999) (5,699,140) Difference between net technical provision in the financial statements and solvency rules ..........................................470,881 525,120 Total 14,754,678 13,094,779 Solvency requirement Life insurance risk ...............................................................................................................................................................536,675 425,729 Health insurance risk ..........................................................................................................................................................1,656,139 1,475,602 Non-life insurance risk .......................................................................................................................................................6,108,228 5,484,355 Market risk .........................................................................................................................................................................5,770,238 5,336,721 Counterparty default risk ...................................................................................................................................................1,169,357 1,117,766 Multifaceted effects ...........................................................................................................................................................(4,695,651) (4,229,553)Base Solvency Capital Requirements (Basic SCR) 10,544,986 9,610,620 Operational risk ..................................................................................................................................................................754,058 680,934 Adjustment for the loss-absorbing capacity of deferred taxes .........................................................................................(1,676,980) (1,518,763)Solvency Capital Requirements (SCR) 9,622,063 8,772,791 Solvency .............................................................................................................................................................................14,754,678 13,094,779 Solvency requirement (SCR) ...............................................................................................................................................9,622,063 8,772,791 Solvency ratio after dividend .............................................................................................................................................1.53 1.49 Eligible items to meet the minimum capital ......................................................................................................................14,754,678 13,094,779 Minimum required capital (MRC) ......................................................................................................................................4,520,510 4,057,090 Minimum required capital ratio after dividend .................................................................................................................3.26 3.23
The Group calculates solvency capital and capital requirements for entities which belong to the insurance sector. The available capital and required
capital is calculated in accordance with Articles 88 and 96 of the Act on Insurance Activity No. 100/2016. This brings the solvency ratio for entities
which belong to the insurance sector to 1.53. Solvency capital requirements according to law is the minimum insurance companies have to meet.
31.12.2023 31.12.2022 On-balance sheet exposures ..............................................................................................................................................243,721,442 226,245,821 Derivative exposures ..........................................................................................................................................................1,187,911 471,815 Off - balance sheet exposures ............................................................................................................................................210,534 260,296 Total exposure 245,119,887 226,977,932 Tier 1 capital .......................................................................................................................................................................33,932,952 28,834,327 Leverage Ratio ....................................................................................................................................................................13.8% 12.7%
The leverage ratio is calculated on the basis of the Group's consolidated numbers as per regulation no. 575/2013 of the EU, which excludes the
Group's insurance subsidiary. According to Act no. 161/2002 on Financial Undertakings the minimum leverage ratio requirement is 3%.
Consolidated Financial Statements 31 December 2023 36
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
43
Risk management
44. Risk management framework
a. Board of Directors
b. Board of Directors sub-committees
c. CEO and the Executive Committee
d. Committees
e. Risk management
The Bank's Board of Directors is responsible for the Group's corporate governance, including the establishment and oversight of the Group's risk
management framework and risk appetite setting. In that respect, the Board of Directors has set a policy on the Group's corporate governance. In
order to ensure harmonized and good governance on a consolidated basis, the Bank's Board of Directors further sets out ownership policies for
subsidiaries that are considered an important part of the Group's operations. According to the ownership policies, the Boards of Directors of the
relevant subsidiaries shall always provide the Bank with all information necessary for the Bank to carry out its supervisory role and the services that
the Bank provides to the relevant subsidiaries. Further, as risk management must be co-ordinated on a group-wide basis, those subsidiaries, shall
provide risk management with all necessary information to enable the Bank to be able to fulfil its obligations as parent company of the Group. The
head of risk management and the Bank's compliance officer can request a direct audience with the Boards of Directors of those subsidiaries. Risk
management policies are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through training and
management standards and procedures, continuously aims to develop a disciplined and constructive control environment in which all employees
understand their roles and obligations.
The Bank's Board of Directors has established three sub-committees, the Risk Committee, the Audit Committee and the Remuneration Committee. In
accordance with the Bank´s articles of association, members of the committees are appointed in accordance with applicable law, and each
committee currently has three members. It is not permitted to appoint employees of the Bank to any committee. Members shall have the necessary
experience and knowledge for each committee´s tasks according to applicable laws and rules. Each committee has incorporated procedural rules
which have been confirmed by the Board of Directors.
The Remuneration Committee is intended to perform a consultative and supervisory role for the Bank’s Board of Directors in connection with the
Bank’s remuneration and that they support the objectives and interests of the Bank.
The CEO is responsible for the effective implementation risk management through the corporate governance structure and committees. The CEO
appoints a Deputy CEO and Managing Directors which, together with the CEO, form the Bank’s Executive Committee. Each Managing Director heads
individual divisions within the Bank at any given time. The Bank’s Executive Committee together with the CEO of TM tryggingar hf. and the CEO of
Kvika eignastýring hf. form the Group Executive Committee.
The Bank operates four committees that are involved in risk management: an Asset and Liability Committee (ALCO), a Credit Committee, an
Operations Committee and a Sustainability Committee. ALCO, the Operations Committee and the Sustainability Committee operate on a Group level.
The Risk Committee is intended to perform a consultative and supervisory role for the Bank’s Board of Directors, including for the formation of the
Bank’s risk policy and risk appetite. The Risk Committee supervises the arrangement and activity of risk management, credit risk, market risk, liquidity
risk, operational risk, reputational risk and other risk as applicable.
The Audit Committee is intended to perform a consultative and supervisory role for the Bank’s Board of Directors, including to ensure the quality of
the annual accounts and other financial information of the Bank and the independence of the Bank’s auditors. The Audit Committee monitors the
work process for the preparation of financial statements, the functioning of internal controls as well as internal and external auditing.
The Executive Committee manages and supervises, as decided by the CEO, the day-to-day operations of Kvika in accordance with the policy
formulated by the Bank's BOD in collaboration with the CEO.
Furthermore, the CEO has established four committees within the Bank, which are, along with the Bank’s Executive Committee, responsible for
developing and monitoring risk management policies in specified areas across the divisions.
The Sustainability Committee oversees and is responsible for the enforcement of Kvika’s sustainability strategy, approved by Kvika’s Board of
Directors. The strategy includes a common vision of an approach to sustainability within the Group, to be a responsible participant in the society,
consider the future, and promote a sustainable society. The committee supervises the development of sustainability on a consolidated basis and that
the Bank’s sustainability goals are achieved.
The purpose of the Bank's risk management unit is to identify, quantify, control and report on the risks that the Group is exposed to in its daily
activities. The unit also participates in drafting the overall risk policy and has representatives on the ALCO committee, Credit committee and the
Operations committee. The unit’s main activities include monitoring and managing credit risk, market risk, liquidity risk and operational risk. The
Board of Directors sets the rules and guidelines regarding the Group's risk policy and the obligations of risk management and internal controls. The
division reports regularly on the Group’s positions and exposure to risk to the Board of Directors, the CEO and to the ALCO committee.
ALCO supervises the management of the Group's balance sheet, assets and liabilities. This involves determining the most efficient division between
returns and risk and allocating funds to the Group's business units.
The Credit Committee carries out matters assigned to the committee according to the Bank’s credit rules, approved by the Board of Directors, and
reviews the reports submitted to the Board of Directors according to the credit rules. The credit rules define the authority of the Credit Committee
when it comes to granting credit facilities and the purchase and sale of investment property as applicable.
The Operations Committee is responsible for increasing efficiency in the Bank’s operations and reducing operational risks, as well as ensuring that
safety issues concerning e.g. Kvika’s housing, operational security of IT systems, security of personal information and security in the transport of
valuables are up to standards.
Consolidated Financial Statements 31 December 2023 37
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
44
44. Risk management framework (cont.)
f.
g.
45. Hedging
46. Credit risk - overview
a. Definition
b. Management
c. Credit approval process
d. Collateral
e. Credit rating, control and provisioning
f. Loan portfolio management
Internal Audit
The compliance function is an independent function that operates under the CEO, and the appointment of the Compliance Officer and his deputy is
confirmed by the Board. The compliance function monitors the Bank's compliance risk on a permanent basis and that the measures, policies and
procedures that have been put in place so that the Bank complies with its obligations are adequate and effective. The Compliance Officer is also
responsible for coordinating and monitoring the Bank's compliance with applicable anti-money laundering and terrorist financing laws and
regulations. The Compliance officer, further, manages provisions of applicable market abuse laws and regulations, regarding the handling of inside
information and PDMR transactions, and oversees the complaints managements process. Compliance is operated on a consolidated basis and the
employees responsible for compliance in the Bank’s subsidiaries report to and receive support from the Compliance Officer and the parent entity’s
compliance function.
Compliance Officer
The internal audit activity of Kvika bank hf. operates according to Article 16 on the Act on financial companies no. 161/2002 and guiding
recommendations of the Financial Supervisory Authority of the Central Bank of Iceland regarding the work of the audit activity of financial companies
no. 3/2008. In addition to the terms of the audit charter, international IPPF standards on internal auditing apply to the department's activities. Kvika's
internal audit activity is organisationally independent and the internal auditor is has a position accordingly in the organizational chart. In accordance
with the internal auditor's charter, he also has direct and unrestricted access to the board and managers of the Bank and its subsidiaries. Kvika's
internal audit activity must provide independent and objective confirmation and consulting services on the Bank's activities on a consolidated basis,
aimed at increasing its value. The department's activities assess and improve the effectiveness of risk management, control methods and governance
through a systematic and disciplined way, thus contributing to Kvika's group achieving its key goals. The director of internal audit (internal auditor) is
responsible for effectively managing the internal audit activity in accordance with the audit charter and the IPPF standards.
Securities held as a hedge against derivatives positions of customers make up a part of the Group's portfolio of assets. The Group hedges currency
exposure between the Group's asset portfolio and its liabilities to the extent possible as part of managing its balance and keeping it within approved
limits. The Group applies hedge accounting according to IAS 39 against translation of foreign operations. Currency swap agreements are used as a
hedge instrument against translation difference arising from foreign operations.
To ensure an effective diversification of the loan portfolio the board has set a limit framework defining maximum exposure as a ratio of the Group’s
equity and/or the total size of the loan portfolio. These limits include limitation on joint exposure to associated clients, exposure to individual and
associated industries, single regions and countries etc. It is the responsibility of risk management to monitor that these limits are not being violated
and to report discrepancies to the credit committee.
One of the Group's primary sources of risk is counterparty credit risk. Credit risk is defined as the risk that one party to a financial instrument will
cause a financial loss for the other party by failing to discharge an obligation.
The risk management unit is responsible for managing and reporting on credit risk. The Group uses a variety of tools and processes to manage credit
risk, including collaterals, hedges and loan portfolio management.
To a very large extent the Group's loan portfolio consists of senior loans, most of which are highly collateralised.
Securing loans with collateral is a traditional method to reduce credit risk. The Group uses different methods to reduce credit risk by obtaining
collateral from customers where appropriate. Such collateral gives the Group right to the collateralised assets for current and future obligations
incurred by the customer.
The Group places emphasis on pricing loans according to the value and quality of pledged collateral. The Group applies appropriate haircuts on all
collateral in order to ensure proper risk mitigation. For all collateral in listed securities, the Group maintains the right to liquidate collateral in case its
market value falls below a predefined limit.
The risk management unit is responsible for credit rating and reviewing the loan portfolio.
The Group monitors the value of collateral by listed securities on a real time basis and takes prompt action when necessary.
The originating department prepares a proposal for each larger loan or credit line which is presented to the credit committee for approval. The
proposal consists of a basic description of the client, the purpose of the loan, a simple credit assessment and arguments for or against granting the
loan. The committee decides whether there is need for further credit assessment and on what terms the loan may be granted. For smaller loans the
originating department obtains a general credit approval from the credit committee with respect to the process, terms, credit limits and total amount
of the specific lending type.
A more thorough credit assessment may be conducted if considered appropriate and can include an assessment of a borrower's fundamental credit
strength as well as the value of any collateral. To assess the borrower's capacity to meet his or her obligations the committee can request stress test
analysis of the borrower's cash flow or call for third party assessments.
Consolidated Financial Statements 31 December 2023 38
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
44
46. Credit risk - overview (cont.)
g. Impairment
h. Derivatives
i. Securities used for hedging
The Group offers derivative contracts in the form of swap contracts on highly liquid securities or currencies. On the day when the contract is entered
into, the Group purchases the underlying asset and hedges its exposure to price changes. Collateral is in the form of cash or listed, highly liquid
securities. The risk management sets rules about the level of collateralisation and monitors the compliance to these rules. Contracts are closed if
required levels of collateralisation are not met.
The Group hedges itself for market risk of derivative contracts by purchasing the underlying securities at the commencement of the contract. Since
the contracts require delivery of the underlying securities to the customer on the settlement day, the credit risk towards the issuer is immaterial.
Provisioning for loan impairments is estimated on the basis of expected loss models assessing the portfolio as a whole as well as individual lending.
Risk management suggest a level of provisioning for the portfolio, based on the expected loss assessment. Risk management reassess impairments in
the event of collateral decay, delayed payments, indication of increased risk, or other early warning signs. Provisions require approval from the credit
committee. Refer to note 84 in the financial statements for more information on the Group's impairment policy.
Consolidated Financial Statements 31 December 2023 39
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
46
47. Maximum exposure to credit risk
48. Credit quality of financial assets
* Comparative information has been restated, reference is made to note 3 for further information.
ScenariosModel parameters 31.12.2023Base Upside DownsideUnemployment rate 4.8% 4.4% 5.0%Inflation CPI index 5.7% 6.0% 6.7%Assigned weight 60.0% 10.0% 30.0%ScenariosModel parameters 31.12.2022Base Upside DownsideUnemployment rate 3.8% 3.2% 4.6%Inflation CPI index 4.4% 4.8% 6.7%Assigned weight 60.0% 10.0% 30.0%
The following table shows the first 12 month macro economic values for the variables used in the expected credit loss model. The Group utilises
an economic forecast which is aligned with requirements for the calculation of expected credit loss. Following the Group's acquisition of Ortus
Secured Finance ltd., the Group owns loan portfolios in two geographical segments, i.e. Iceland and the United Kingdom ("UK"). In general, the
Group utilises the same ECL methodology for the portfolios in both segments, although in the UK it is to a larger extent based on an individual
assessment by credit specialists. Reference is made to note 84 for further information about the Group‘s impairment methodology.
The book value of financial assets which fall under the impairment requirements of IFRS 9 are presented net of expected credit losses ("ECL") in
the statement of financial position. The ECL are recalculated for each asset on at least a quarterly basis. The assessment of ECL is based upon
calculations being derived from models on PD, LGD and EAD. Furthermore, the assessment is based upon management's assumptions regarding
the development of macroeconomic factors over the coming twelve months. The assumptions for macroeconomic development are decided for
three scenarios: a base case, an upside scenario and a downside scenario, including a probability weight for each scenario. The assumptions are
used for calculations of the probability weighted ECLs. The amount of ECL to be recognized is dependent on the Group's definition of significant
increase in credit risk, which controls the impairment stage each asset is allocated to. The factors that are used to measure significant increase in
credit risk include comparison of changes in PD values, annualized lifetime PD values, days past due and watch list.
The maximum exposure to credit risk for on-balance sheet and off-balance sheet items, before taking into account any collateral held or other
credit enhancements, is specified as follows:
31.12.2023 Public Financial Corporate On-balance sheet exposure entities institutions customers Individuals 31.12.2023 Cash and balances with Central Bank ................................................17,324,455 6,356,998 23,681,453 Fixed income securities .....................................................................63,928,567 944,255 104,584 64,977,406 Loans to customers ...........................................................................11,127 97,867,223 38,445,131 136,323,481 Derivatives .........................................................................................1,981,114 466,082 50,680 2,497,877 Other assets ......................................................................................394,137 1,184,368 5,179,519 2,322,122 9,080,146 81,658,286 10,466,735 103,617,408 40,817,934 236,560,362 Off-balance sheet exposure Loan commitments ............................................................................4,175,306 1,029,698 5,205,004 Financial guarantee contracts ...........................................................211,940 211,940 Maximum exposure to credit risk 81,658,286 10,466,735 108,004,653 41,847,632 241,977,306 31.12.2022* Public Financial Corporate On-balance sheet exposure entities institutions customers Individuals 31.12.2022 Cash and balances with Central Bank ................................................29,279,085 7,391,501 36,670,586 Fixed income securities .....................................................................54,989,042 5,309,011 4,862,354 65,160,407 Loans to customers ...........................................................................15,103 69,139,761 37,984,363 107,139,227 Derivatives .........................................................................................3,955,424 917,391 67,923 4,940,738 Other assets ......................................................................................1,013,523 1,432,807 7,793,876 66,701 10,306,907 85,296,753 18,088,743 82,713,382 38,118,988 224,217,865 Off-balance sheet exposure Loan commitments ............................................................................1,955,620 725,755 2,681,375 Financial guarantee contracts ...........................................................261,861 261,861 Maximum exposure to credit risk 85,296,753 18,088,743 84,930,863 38,844,743 227,161,102
Consolidated Financial Statements 31 December 2023 40
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
48
48. Credit quality of financial assets (cont.)
a.
Collateral value is shown as the market- or accounting value of collateral allocated to exposures. Other collateral includes financial claims, inventories and receivables. For larger unsecured claim values, the Group is in general covered by covenants in the
loan agreement, e.g. with a negative pledge or other ring fencing.
Allocated collateralImpairment Listed UnlistedClaim due to expected Carrying Total securities andsecurities andResidential Commercial Industrial Unsecured 31.12.2022 value credit loss amount % collateral Deposits liquid funds other funds real estate real estate Automobiles equipment Guarantees Other claim value Public entities ...................................................15,205 (101) 15,103 0.0% 13,283 0 0 0 0 0 12,571 0 0 712 5,298 Financial institutions .........................................0 0 0 0.0% 0 0 0 0 0 0 0 0 0 0 0 Corporate Real estate activities ................................... 25,345,063 (851,711) 24,493,352 22.9% 64,676,404 10,455 15,979 3,585,720 27,853,966 32,110,347 719,242 167,171 10,000 203,524 627,578 Construction ............................................... 10,270,953 (257,339) 10,013,615 9.3% 19,746,074 5,538 368,182 0 7,035,420 4,913,005 3,593,914 3,281,321 0 548,694 338,057 Activities of Holding Companies .................. 9,722,282 (31,475) 9,690,807 9.0% 22,428,613 36,857 363,192 11,217,850 7,467,709 2,594,675 159,892 86,548 476,455 25,436 1,161,514 Service Activities ......................................... 9,580,738 (180,993) 9,399,745 8.8% 18,488,730 14,912 88,391 3,045,055 316,519 830,661 10,169,808 2,326,169 0 1,697,215 288,971 Accommodat. and Food Service Activit. ...... 4,250,532 (2,665) 4,247,868 4.0% 7,810,464 48,600 0 260,499 2,949,673 4,108,349 376,230 0 0 67,113 582,359 Wholesale and Retail Trade ........................ 3,702,513 (53,119) 3,649,393 3.4% 6,075,435 101,455 70,278 0 0 1,234,684 2,280,567 1,282,092 100,000 1,006,358 236,447 Other .......................................................... 8,167,845 (522,864) 7,644,981 7.1% 14,167,010 310,042 3,414,030 581,856 1,489,635 1,740,913 2,158,699 3,012,388 854,054 605,394 1,210,526 Individual ..........................................................38,737,428 (753,064) 37,984,363 35.5% 56,036,869 47,136 1,332,491 782,099 12,114,940 2,913,038 37,087,081 1,445,293 0 314,790 7,831,670 Total 109,792,560 (2,653,333) 107,139,227 100.0% 209,442,883 574,996 5,652,543 19,473,080 59,227,861 50,445,672 56,558,004 11,600,982 1,440,509 4,469,236 12,282,420
Breakdown of loans to customers by industry and information on collateral and other credit enhancements
The Group applies the same valuation methods to collateral held as other comparable assets held by the Group. For other types of assets the Group uses third party valuation where possible.
Allocated collateralImpairment Listed UnlistedClaim due to expected Carrying Total securities andsecurities andResidential Commercial Industrial Unsecured 31.12.2023 value credit loss amount % collateral Deposits liquid funds other funds real estate real estate Automobiles equipment Guarantees Other claim value Public entities ...................................................11,188 (61) 11,127 0.0% 11,553 0 0 0 0 0 11,226 0 0 327 2,917 Financial institutions .........................................0 0 0 0.0% 0 0 0 0 0 0 0 0 0 0 0 Corporate Real estate activities ................................... 31,508,020 (234,278) 31,273,742 22.9% 59,514,931 25,414 0 54,180 28,804,369 29,574,694 797,093 205,458 0 53,722 457,258 Construction ............................................... 20,585,501 (82,066) 20,503,434 15.0% 45,467,134 158,988 0 0 17,773,191 18,323,454 4,611,641 3,990,110 0 609,751 243,654 Service Activities ......................................... 14,131,242 (148,035) 13,983,207 10.3% 25,910,745 45,492 79,577 2,228,442 270,692 1,306,517 16,455,917 2,742,679 0 2,781,430 380,611 Accommodat. and Food Service Activit. ...... 6,180,590 (11,206) 6,169,384 4.5% 12,829,867 73,657 0 0 2,887,040 9,307,016 504,811 0 0 57,343 24,105 Wholesale and Retail Trade ........................ 7,974,891 (55,417) 7,919,474 5.8% 12,230,309 23,658 312,321 0 4,660,937 1,330,258 3,447,895 1,502,756 100,000 852,484 53,298 Activities of Holding Companies .................. 7,975,924 (576,301) 7,399,624 5.4% 23,080,630 48,409 347,097 10,610,025 7,001,067 3,572,982 219,871 200,625 805,971 274,582 123,335 Other .......................................................... 10,740,500 (122,143) 10,618,358 7.8% 23,724,577 267,508 6,391,784 939,372 4,084,596 4,721,067 2,312,012 3,488,403 693,755 826,082 524,143 Individual ..........................................................39,434,283 (989,152) 38,445,131 28.2% 55,469,271 13,328 1,023,000 601,250 9,311,354 2,961,368 39,589,466 1,760,237 0 209,268 8,918,673 Total 138,542,141 (2,218,660) 136,323,481 100.0% 258,239,017 656,453 8,153,779 14,433,268 74,793,246 71,097,357 67,949,932 13,890,267 1,599,726 5,664,989 10,727,994
Consolidated Financial Statements 31 December 2023 41
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
48
48. Credit quality of financial assets (cont.)
b.
88,207
1
11,876
The following tables show financial assets subject to the impairment requirements of IFRS 9 broken down by credit quality bands where band i
denotes the lowest and band iv the highest credit risk. Assets measured at fair value through profit or loss are not subject to the stage classification
requirements of IFRS 9 but are nevertheless included in the tables in order to give a more complete picture of the credit quality of loans to customers
and reconcile the tables to the carrying amount on the balance sheet. The Bank has primarily used adjusted external credit ratings to assess the
default probability of its customers and some larger borrowers are furthermore individually assessed by credit specialists. In year-end 2023 the Bank
implemented it's own credit rating models for part of the loan portfolio and the Bank has intention to maintain this development in 2024.
Credit quality of financial assets by credit quality band
31.12.2022Loans to customers:Stage 1 Stage 2 Stage 3 FVTPL Total Credit quality band I ................................................................................80,658,854 600,058 1,036,459 82,295,371 Credit quality band II ...............................................................................11,518,509 2,774,574 14,293,083 Credit quality band III ..............................................................................2,569,408 2,594,665 46,291 5,210,364 Credit quality band IV ..............................................................................795,448 642,777 ,438,225 In default .................................................................................................56,257 528,954 5,313,498 127,641 6,026,351 Non-rated ................................................................................................506,757 22,410 529,166 Gross carrying amount 96,105,233 7,163,439 5,313,498 1,210,390 109,792,560 Expected credit loss ................................................................................(258,197) (255,541) (2,139,595) (2,653,333)Book value 95,847,035 6,907,898 3,173,904 1,210,390 107,139,227 Loan commitments, guarantees and unused credit facilities:Stage 1 Stage 2 Stage 3 FVTPL Total Credit quality band I ................................................................................1,839,673 3,595 27,460 1,870,728 Credit quality band II ...............................................................................217,400 217,400 Credit quality band III ..............................................................................274,343 318,188 236,380 828,910 Credit quality band IV ..............................................................................14,097 225 14,322 In default .................................................................................................402 1,000 10,474 Non-rated ................................................................................................0 Total off-balance sheet amount 2,345,915 323,008 10,474 263,840 2,943,236 Expected credit loss ................................................................................(11,408) (1,269) (258) (12,935)Net off-balance sheet amount 2,334,507 321,739 10,216 263,840 2,930,302
31.12.2023 Loans to customers:Stage 1 Stage 2 Stage 3 FVTPL Total Credit quality band I ................................................................................84,252,096 744,843 427,849 85,424,788 Credit quality band II ...............................................................................33,627,994 2,687,909 39,319 36,355,221 Credit quality band III ..............................................................................6,503,029 1,977,002 8,480,030 Credit quality band IV ..............................................................................769,496 485,101 1,254,597 In default .................................................................................................70,248 118,140 5,999,315 215,265 6,402,968 Non-rated ................................................................................................624,537 0 624,537 Gross carrying amount 125,847,398 6,012,995 5,999,315 682,433 138,542,141 Expected credit loss ................................................................................(367,895) (127,520) (1,723,244) (2,218,660)Book value 125,479,503 5,885,474 4,276,072 682,433 136,323,481 Loan commitments, guarantees and unused credit facilities:Stage 1 Stage 2 Stage 3 FVTPL Total Credit quality band I ................................................................................3,773,821 0 3,773,821 Credit quality band II ...............................................................................920,679 1,211 921,890 Credit quality band III ..............................................................................586,052 41,972 628,024 Credit quality band IV ..............................................................................3,407 1,594 5,002 In default .................................................................................................351 1 87,855 Non-rated ................................................................................................0 0 Total off-balance sheet amount 5,284,311 44,778 87,855 0 5,416,944 Expected credit loss ................................................................................(13,897) (538) (1,253) (15,688)Net off-balance sheet amount 5,270,413 44,241 86,602 0 5,401,256
Consolidated Financial Statements 31 December 2023 42
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
48
48. Credit quality of financial assets (cont.)
c. Breakdown of loans to customers into not past due and past due
d. Allowance for expected credit loss on loans to customers and loan commitments, guarantees and unused credit facilities
31.12.2023
Expected credit loss allowance total
Expected credit loss allowance for loans to customers
Stage 1 Stage 2 Stage 3 TotalTransfers of financial assets:Balance as at 1 January 2023 258,197 255,541 2,139,595 2,653,333 Transfer to Stage 1 - (Initial recognition) .....................................................................67,521 (51,445) (16,076) 0 Transfer to Stage 2 - (significantly increased credit risk) .............................................(10,685) 17,102 (6,416) 0 Transfer to Stage 3 - (credit impaired) .........................................................................(32,750) (69,985) 102,736 0 Net remeasurement of loss allowance ..............................................................................(91,795) 2,716 840,191 751,112 New financial assets, originated or purchased ..................................................................278,426 84,474 654,771 1,017,672 Derecognitions and maturities ..........................................................................................(100,961) (110,411) (881,328) (1,092,700) Write-offs ...........................................................................................................................(57) (471) (1,110,229) (1,110,757)Balance as at 31 December 2023 367,895 127,520 1,723,244 2,218,660
The following tables show changes in the expected credit loss allowance of loans to customers and for loan commitments, guarantees and unused
credit facilities during the period.
Stage 1 Stage 2 Stage 3 TotalTransfers of financial assets:Balance as at 1 January 2023 269,605 256,810 2,139,852 2,666,267 Transfer to Stage 1 - (Initial recognition) .....................................................................67,581 (51,505) (16,076) 0 Transfer to Stage 2 - (significantly increased credit risk) .............................................(10,766) 17,183 (6,416) 0 Transfer to Stage 3 - (credit impaired) .........................................................................(32,752) (70,485) 103,237 0 Net remeasurement of loss allowance ..............................................................................(93,507) 3,002 840,190 749,685 New financial assets, originated or purchased ..................................................................284,314 84,645 655,505 1,024,464 Derecognitions and maturities ..........................................................................................(102,625) (111,119) (881,568) (1,095,312) Write-offs ...........................................................................................................................(57) (471) (1,110,229) (1,110,757)Balance as at 31 December 2023 381,793 128,058 1,724,497 2,234,348
31.12.2022 Claim Expected Carryingvalue credit loss amount Not past due ..................................................................................................................................................99,766,659 (535,445) 99,231,215 Past due 1-30 days ........................................................................................................................................3,080,787 (77,173) 3,003,615 Past due 31-60 days ......................................................................................................................................2,559,244 (519,905) 2,039,339 Past due 61-90 days ......................................................................................................................................968,329 (39,792) 928,538 Past due 91-180 days ....................................................................................................................................381,807 (65,948) 315,859 Past due 181-360 days ..................................................................................................................................629,617 (146,403) 483,214 Past due more than 360 days .......................................................................................................................2,406,115 (1,268,667) 1,137,448 Total 109,792,560 (2,653,333) 107,139,227
31.12.2023 Claim Expected Carryingvalue credit loss amount Not past due ..................................................................................................................................................127,943,377 (571,621) 127,371,756 Past due 1-30 days ........................................................................................................................................2,443,573 (50,506) 2,393,067 Past due 31-60 days ......................................................................................................................................1,933,845 (195,102) 1,738,744 Past due 61-90 days ......................................................................................................................................1,757,416 (74,920) 1,682,496 Past due 91-180 days ....................................................................................................................................1,494,409 (601,446) 892,963 Past due 181-360 days ..................................................................................................................................1,912,571 (197,428) 1,715,143 Past due more than 360 days .......................................................................................................................1,056,951 (527,638) 529,313 Total 138,542,141 (2,218,660) 136,323,481
Consolidated Financial Statements 31 December 2023 43
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
48
48. Credit quality of financial assets (cont.)
Expected credit loss allowance for loan commitments, guarantees and unused credit facilities
31.12.2022
Expected credit loss allowance total
Expected credit loss allowance for loans to customers
Expected credit loss allowance for loan commitments, guarantees and unused credit facilities
Stage 1 Stage 2 Stage 3 TotalTransfers of financial assets:Balance as at 1 January 2022 4,940 130 1,649 6,720 Transfer to Stage 1 - (Initial recognition) .....................................................................307 (55) (253) 0 Transfer to Stage 2 - (significantly increased credit risk) .............................................(1,098) 1,098 0 Transfer to Stage 3 - (credit impaired) .........................................................................0 Net remeasurement of loss allowance ..............................................................................4,258 124 (252) 4,130 New financial assets, originated or purchased ..................................................................4,756 239 4,996 Derecognitions and maturities ..........................................................................................(1,755) (29) (1,127) (2,911)Balance as at 31 December 2022 11,408 1,269 258 12,935
Stage 1 Stage 2 Stage 3 TotalTransfers of financial assets:Balance as at 1 January 2022 211,083 293,663 831,885 1,336,631 Transfer to Stage 1 - (Initial recognition) .....................................................................51,041 (40,550) (10,491) 0 Transfer to Stage 2 - (significantly increased credit risk) .............................................(6,795) 22,279 (15,483) 0 Transfer to Stage 3 - (credit impaired) .........................................................................(9,714) (125,921) 135,635 0 Net remeasurement of loss allowance ..............................................................................(67,769) (3,588) 450,570 379,213 New financial assets, originated or purchased ..................................................................197,246 177,845 1,317,710 1,692,801 Derecognitions and maturities ..........................................................................................(116,723) (66,356) (412,417) (595,495) Write-offs ...........................................................................................................................(172) (1,832) (157,814) (159,818)Balance as at 31 December 2022 258,197 255,541 2,139,595 2,653,333
Stage 1 Stage 2 Stage 3 TotalTransfers of financial assets:Balance as at 1 January 2022 216,023 293,794 833,534 1,343,351 Transfer to Stage 1 - (Initial recognition) .....................................................................51,349 (40,605) (10,744) 0 Transfer to Stage 2 - (significantly increased credit risk) .............................................(7,894) 23,377 (15,483) 0 Transfer to Stage 3 - (credit impaired) .........................................................................(9,714) (125,921) 135,635 0 Net remeasurement of loss allowance ..............................................................................(63,511) (3,464) 450,319 383,343 New financial assets, originated or purchased ..................................................................202,002 177,845 1,317,950 1,697,797 Derecognitions and maturities ..........................................................................................(118,478) (66,385) (413,543) (598,406) Write-offs ...........................................................................................................................(172) (1,832) (157,814) (159,818)Balance as at 31 December 2022 269,605 256,810 2,139,852 2,666,267
Stage 1 Stage 2 Stage 3 TotalTransfers of financial assets:Balance as at 1 January 2023 11,408 1,269 258 12,935 Transfer to Stage 1 - (Initial recognition) .....................................................................61 (61) 0 Transfer to Stage 2 - (significantly increased credit risk) .............................................(81) 81 0 Transfer to Stage 3 - (credit impaired) .........................................................................(2) (500) 502 0 Net remeasurement of loss allowance ..............................................................................(1,712) 286 (1) (1,427) New financial assets, originated or purchased ..................................................................5,888 171 734 6,792 Derecognitions and maturities ..........................................................................................(1,664) (708) (239) (2,611)Balance as at 31 December 2023 13,897 538 1,253 15,688
Consolidated Financial Statements 31 December 2023 44
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
48
49. Loan-to-value
a. General
b. Breakdown
50. Collateral against exposures to derivatives
51. Large exposures
31.12.2023 31.12.2022 Large exposures before risk adjusted mitigation Number Amount Number Amount 10-20% of capital base .......................................................................................................3 12,343,465 2 7,009,093 20-25% of capital base .......................................................................................................0 0 0 0 Exceeding 25% of capital base ...........................................................................................0 0 0 0 Total 3 12,343,465 2 7,009,093 Large exposures net of risk adjusted mitigation ...............................................................1 4,002,353 1 2,980,320
Fixed Variable Other income income Real fixed Deposits securities securities estate assets Other 31.12.2023 Financial institutions ................................1,077,011 137,593 710,208 1,924,812 Corporate customers ...............................789,728 70,988 1,812,452 2,673,168 Individuals ................................................66,501 43,028 109,529 Total 1,933,241 208,581 2,565,687 0 0 0 4,707,509
In accordance with regulation no. 575/2013 of the European Union on prudential requirements for credit institutions, which was incorporated into
Icelandic law with Act No. 38/2022, total exposure towards a customer is classified as a large exposure if it exceeds 10% of the financial institution's
Tier 1 capital (see note 41).
According to the regulation a single exposure, net of risk adjusted mitigation, cannot exceed 25% of the eligible Tier 1 capital. Based on Icelandic rules
no. 789/2022 on the Application of Optional Provisions and Authorisations Pursuant to the Act on Financial Undertakings, the value of exposures
towards financial institutions shall not exceed 25% of the eligible Tier 1 capital or 10 bn. ISK, whichever is higher. Single large exposures net of risk
adjusted mitigation take into account the effects of collateral and other credit enhancements held by the financial institution, and other credit
enhancements, in accordance with regulation no. 575/2013.
The loan-to-value ratio (LTV) is the ratio of the gross amount of the loan to the value of the collateral, if any. The general creditworthiness of a
customer is viewed as the most reliable indicator of credit quality of a loan. Besides collateral included in the LTV ratios the Group uses other risk
mitigation measures, such as guarantees, negative pledge, cross-collateral and collateralization of non-quantifiable assets.
The breakdown of loans to customers by LTV is specified as follows:
Fixed Variable Other income income Real fixed Deposits securities securities estate assets Other 31.12.2022 Financial institutions ................................2,984,076 8,498 2,992,574 Corporate customers ...............................2,078,835 347,669 1,666,005 4,092,509 Individuals ................................................61,211 34,926 47,221 143,357 Total 5,124,122 391,093 1,713,226 0 0 0 7,228,441
Amounts have been adjusted to exclude collateral in excess of claim value, i.e. overcollateralisation.
31.12.2023 % 31.12.2022 % Less than 50% .....................................................................................................................40,343,153 29.6% 29,001,396 27.1% 51-70% ...............................................................................................................................43,106,020 31.6% 36,654,281 34.2% 71-90% ...............................................................................................................................37,703,829 27.7% 22,168,930 20.7% 91-100% .............................................................................................................................2,996,007 2.2% 3,027,670 2.8% 100-125% ...........................................................................................................................2,390,159 1.8% 3,880,228 3.6% 125-200% ...........................................................................................................................726,535 0.5% 511,406 0.5% Greater than 200% .............................................................................................................493,460 0.4% 2,704,141 2.5% No or negligible collateral: Other loans with no collateral ......................................................................................8,564,319 6.3% 9,191,175 8.6% Total 136,323,481 100.0% 107,139,227 100.0%
The Group applies the same valuation methods to collateral held as other comparable assets held by the Group. Haircuts are applied to account for
liquidity and other factors which may affect the collateral value of the asset.
Consolidated Financial Statements 31 December 2023 45
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
51
52. Liquidity risk
a. Definition
b. Management
1
1
* Deposits include Money market deposits which are classified as Borrowings in the Consolidated Statement of Financial Position.
Liquidity risk is the risk that the Group will encounter difficulty in meeting contractual payment obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset. This risk mainly arises from mismatches in the timing of cash flows. The Group has internal
rules that require certain matching of the maturities of assets and liabilities. Furthermore, to ensure the ability to meet liquidity needs, the Group
maintains a stock of highly liquid unencumbered assets, e.g. cash, treasury bills and treasury bonds.
Liquidity is managed by treasury and monitored by risk management. Liquidity position is reported to the ALCO committee. The Central Bank of
Iceland sets minimum requirements for the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). The minimum 30 day LCR regulatory
requirement is 100% for LCR total, 50% minimum requirement for LCR in ISK and 80% minimum requirement for LCR in EUR. The minimum
requirement for LCR EUR only applies when the Group‘s commitments in EUR represent 10% or more of the Group´s total commitments. The minimum
regulatory requirement for NSFR total is 100%.
31.12.2023 31.12.2022 NSFR total ..............................................................................................................................................................................141% 140%
ISKForeign currencyTotal31.12.2022 Unweighted Weighted Unweighted Weighted Unweighted Weighted Liquid assets level 1 ..................................................................75,123,792 75,123,792 2,835,959 2,835,959 77,959,751 77,959,751 Liquid assets level 2 ..................................................................1,149,243 976,856 1,149,243 976,856 Total liquid assets ................................................................76,273,034 76,100,648 2,835,959 2,835,959 79,108,993 78,936,607 Deposits* ..................................................................................85,058,224 27,084,330 8,978,550 4,289,645 94,036,775 31,373,975 Other borrowings ......................................................................315,021 315,021 11,080 11,080 326,101 326,101 Other outflows ..........................................................................5,008,349 3,358,604 3,473,773 275,923 8,482,123 3,634,527 Total outflows (0-30 days) ....................................................90,381,595 30,757,955 12,463,404 4,576,647 02,844,999 35,334,602 Short-term deposits with other banks ......................................114,113 114,113 3,483,111 3,483,111 3,597,224 3,597,224 Other inflows ............................................................................12,762,268 6,379,561 1,157,700 678,050 13,919,968 7,057,612 Restrictions on inflows .............................................................(728,675) Total inflows (0-30 days) ......................................................12,876,381 6,493,675 4,640,811 3,432,486 17,517,192 10,654,835 Liquidity coverage ratio ........................................................314% 248% 320%
ISKForeign currencyTotal31.12.2023 Unweighted Weighted Unweighted Weighted Unweighted Weighted Liquid assets level 1 ..................................................................61,248,977 61,248,977 14,679,969 14,679,969 75,928,946 75,928,946 Liquid assets level 2 ..................................................................353,146 300,174 353,146 300,174 Total liquid assets ................................................................61,602,122 61,549,150 14,679,969 14,679,969 76,282,091 76,229,119 Deposits* ..................................................................................111,263,406 27,328,035 6,915,793 3,406,552 118,179,199 30,734,587 Other borrowings ......................................................................109,333 109,333 1,109 1,109 110,442 110,442 Other outflows ..........................................................................14,896,187 11,083,491 8,222,931 887,195 23,119,118 11,970,686 Total outflows (0-30 days) ....................................................126,268,925 38,520,859 15,139,834 4,294,857 41,408,759 42,815,715 Short-term deposits with other banks ......................................196,556 196,556 6,312,949 6,312,949 6,509,505 6,509,505 Other inflows ............................................................................13,029,061 4,955,339 818,468 473,124 13,847,529 5,428,462 Restrictions on inflows .............................................................(3,564,930) Total inflows (0-30 days) ......................................................13,225,617 5,151,895 7,131,417 3,221,142 20,357,034 11,937,968 Liquidity coverage ratio ........................................................184% 1367% 247%
Consolidated Financial Statements 31 December 2023 46
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
51
52. Liquidity risk (cont.)
c. Maturity analysis of financial assets and financial liabilities
31.12.2023 Up to 1 1-3 3-12 1-5 Over 5 Gross inflow/ Carrying Financial assets by type month months months years years (outflow) amount Non-derivative assets Cash and balances with Central Bank .............23,681,967 23,681,967 23,681,453 Fixed income securities ...................................20,151,355 1,974,339 21,340,000 18,908,801 2,602,910 64,977,406 64,977,406 Shares and other variable income securities ..1,222,894 411,609 2,222,977 3,857,480 3,857,480 Securities used for hedging .............................16,852,313 16,852,313 16,852,313 Loans to customers .........................................7,839,447 10,674,108 47,315,427 90,723,103 6,895,531 163,447,617 136,323,481 Other assets ....................................................3,794,043 4,265,609 820,319 200,175 9,080,146 10,401,128 73,542,019 17,325,666 71,698,723 109,832,080 9,498,441 281,896,929 256,093,262 Derivative assets Inflow ......................................................... 8,779,563 12,775,096 6,974,032 58,519 28,587,210 Outflow ...................................................... (7,921,683) (12,310,694) (5,856,054) (902) (26,089,333)857,879 464,402 1,117,978 57,617 0 2,497,877 2,497,877 Up to 1 1-3 3-12 1-5 Over 5 Gross inflow/ Carrying Financial liabilities by type month months months years years (outflow) amount Non-derivative liabilities Deposits ..........................................................(115,974,426) (8,335,449) (5,646,547) (4,284,193) (384,513) (134,625,128) 133,772,941 Borrowings ......................................................(8,681,044) (430,722) (2,684,014) (19,142,369) (30,938,148) 23,817,062 Issued bonds ...................................................(109,333) (6,881,308) (9,407,820) (32,874,868) (2,457,149) (51,730,478) 45,715,427 Subordinated liabilities ...................................(354,804) (2,465,385) (8,399,596) (11,219,785) 5,993,084 Short positions held for trading ......................(71,664) (60,081) (131,745) 131,745 Short positions used for hedging ....................(4,230) (4,230) 4,230 Other liabilities ................................................(3,308,385) (11,197,785) (1,652,495) (492,619) (16,651,283) 16,593,993 (128,144,851) (26,845,264) (19,745,680) (59,259,434) (11,305,569) (245,300,798) 226,028,482 Derivative liabilities Inflow ......................................................... 15,157,017 1,721,575 4,653,591 21,532,182 Outflow ...................................................... (16,222,964) (1,759,667) (4,886,823) (859,631) (23,729,086)(1,065,948) (38,092) (233,233) (859,631) 0 (2,196,904) 2,196,904 Unrecognised financial itemsLoan commitments Inflow ......................................................... 211,062 61,502 1,464,611 4,579,989 140,836 6,458,000 Outflow ...................................................... (5,205,004) (5,205,004)Financial guarantee contracts Inflow ......................................................... 163,896 40,976 7,068 211,940 Outflow ...................................................... (211,940) (211,940)(5,205,882) 61,502 1,628,507 4,620,965 147,905 1,252,996 Summary Non-derivative assets .....................................73,542,019 17,325,666 71,698,723 109,832,080 9,498,441 281,896,929 Derivative assets .............................................857,879 464,402 1,117,978 57,617 2,497,877 Non-derivative liabilities .................................(128,144,851) (26,845,264) (19,745,680) (59,259,434) (11,305,569) (245,300,798) Derivative liabilities .........................................(1,065,948) (38,092) (233,233) (859,631) (2,196,904) Assets and liabilities held for sale ...................0 Net assets (liabilities) excluding unrecognised items ...................................(54,810,901) (9,093,288) 52,837,788 49,770,632 (1,807,128) 36,897,103 Net unrecognised items ..................................(5,205,882) 61,502 1,628,507 4,620,965 147,905 1,252,996 Net assets (liabilities) ...................................(60,016,783) (9,031,786) 54,466,295 54,391,597 (1,659,223) 38,150,099
Consolidated Financial Statements 31 December 2023 47
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
51
52. Liquidity risk (cont.)
It should be noted that the Group's expected cash flows sometimes vary considerably from the contractual cash flows, most significantly in that
demand deposits from customers are expected to remain stable or increase in the long term. In this case the presentation used reflects the worst case
scenario from the Group's perspective. Furthermore, the analysis does not consider any measures that could be taken to convert long-term assets to
cash through sale.
Cash flows relating to unrecognised balance sheet items (unused loan commitments and financial guarantee contracts) are presented separately from
financial assets and financial liabilities. Both contractual outflows and inflows are shown, to fully reflect the nature of these items.
Maturity analysis of financial assets and financial liabilities is based on contractual cash flows or, in the case of held for trading securities, expected
cash flows. If an amount receivable or payable is not fixed, e.g. for inflation indexed assets and liabilities, the maturity analysis uses estimates based
on current conditions.
* Comparative information has been restated, reference is made to note 3 for further information.
31.12.2022* Up to 1 1-3 3-12 1-5 Over 5 Gross inflow/ Carrying Financial assets by type month months months years years (outflow) amount Non-derivative assets Cash and balances with Central Bank .............34,556,826 2,121,760 36,678,586 36,670,586 Fixed income securities ...................................14,752,525 27,873,149 3,907,528 18,627,205 65,160,407 65,160,407 Shares and other variable income securities ..11,424,516 2,702,765 5,283,228 19,410,508 19,410,508 Securities used for hedging .............................13,841,853 13,841,853 13,841,853 Loans to customers .........................................7,224,508 8,148,187 32,600,452 73,801,224 6,773,201 128,547,573 107,139,227 Reinsurance contract assets ...........................46,290 63,319 294,148 214,844 72,638 691,239 691,239 Other assets ....................................................5,276,555 2,883,802 1,990,869 33,776 121,906 10,306,907 11,883,489 87,123,073 43,792,982 44,076,226 92,677,048 6,967,745 274,637,074 254,797,310 Derivative assets Inflow ......................................................... 25,202,434 2,962,372 6,485,242 2,981,751 37,631,799 Outflow ...................................................... (22,308,183) (2,829,323) (5,401,381) (2,215,601) (32,754,488)2,894,251 133,049 1,083,861 766,150 0 4,877,311 4,940,738 Up to 1 1-3 3-12 1-5 Over 5 Gross inflow/ Carrying Financial liabilities by type month months months years years (outflow) amount Non-derivative liabilities Deposits ..........................................................(94,506,439) (8,882,306) (5,198,432) (4,121,200) (225,740) (112,934,118) 112,245,198 Insurance contract liabilities ...........................(2,132,094) (2,388,608) (7,185,201) (9,631,606) (1,231,551) (22,569,060) 21,101,090 Borrowings ......................................................(6,725,800) (2,647,846) (1,735,135) (18,759,487) (29,868,267) 28,120,009 Issued bonds ...................................................(315,021) (3,088,061) (11,577,901) (24,716,516) (2,320,710) (42,018,209) 38,103,414 Subordinated liabilities ...................................(212,271) (916,053) (6,571,430) (7,699,754) 3,686,451 Short positions held for trading ......................(1,486,107) (1,486,107) 1,486,107 Short positions used for hedging ....................(1,343,186) (1,343,186) 1,343,186 Other liabilities ................................................(3,344,393) (3,584,999) (2,188,492) (527,067) (121,906) (9,766,858) 9,738,535 (109,853,041) (20,591,820) (28,097,433) (58,671,929) (10,471,336) (227,685,559) 215,823,990 Derivative liabilities Inflow ......................................................... (123,731) 1,629,989 3,340,763 6,866,708 11,713,728 Outflow ...................................................... (526,350) (1,761,200) (3,394,813) (7,649,561) (13,331,924)(650,081) (131,212) (54,050) (782,853) 0 (1,618,196) 1,609,537 Unrecognised financial items by typeLoan commitments Inflow ......................................................... 192,918 247,571 1,188,493 1,284,906 2,913,888 Outflow ...................................................... (2,681,375) (2,681,375)Financial guarantee contracts Inflow ......................................................... 5,800 87,750 102,186 66,126 261,861 Outflow ...................................................... (261,861) (261,861)(2,750,318) 253,371 1,276,243 1,387,091 66,126 232,513 Summary Non-derivative assets .....................................87,123,073 43,792,982 44,076,226 92,677,048 6,967,745 274,637,074 Derivative assets .............................................2,894,251 133,049 1,083,861 766,150 4,877,311 Non-derivative liabilities .................................(109,853,041) (20,591,820) (28,097,433) (58,671,929) (10,471,336) (227,685,559) Derivative liabilities .........................................(650,081) (131,212) (54,050) (782,853) (1,618,196)Net assets (liabilities) excluding unrecognised items ...................................(20,485,798) 23,202,999 17,008,605 33,988,415 (3,503,591) 50,210,630 Net unrecognised items ..................................(2,750,318) 253,371 1,276,243 1,387,091 66,126 232,513 Net assets (liabilities) ...................................(23,236,116) 23,456,371 18,284,848 35,375,506 (3,437,466) 50,443,143
Consolidated Financial Statements 31 December 2023 48
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
52
53. Market risk
a. Definition
b. Management
54. Interest rate risk
a. Definition
b. Management
55. Interest rate risk associated with trading portfolios
a. Breakdown
b. Sensitivity analysis
The Group performs monthly sensitivity analysis on financial assets and liabilities in trading portfolios that are subject to interest rate risk. The
sensitivity analysis assumes a shift in the yield curves for all currencies. A parallel shift in yield curves would have the following impact on the Group's
pre-tax profit and equity, assuming all other risk factors remain constant:
Shift in 31.12.2023 31.12.2022 basis points Downward Upward Downward Upward Indexed ........................................................................................................50 25,032 (24,632) 17,328 (17,206)Non-indexed ................................................................................................100 41,408 (39,687) (65,251) 54,360 Total 66,440 (64,319) (47,923) 37,154
Market risk constitutes risk due to changes in the market prices of financial instruments and comprises interest rate risk, currency risk and other price
risk. Notes 54-59 relate to market risk exposure.
The Group has a strict policy on controlling market risk and to keep the exposure within set limits. The risk management unit monitors market risk
limits on a daily basis and reports regularly to the ALCO committee and to the CEO.
The Group's exposure to interest rate risk is twofold. On the one hand, the Group has a proprietary portfolio of bonds, where market rates affect
prices and any fluctuations are recognised in the income statement. On the other hand, the Group has mismatch in assets and liabilities with fixed
interest terms. These include loans and swap contracts for securities on the asset side and borrowings and deposits on the liability side. This
mismatch does not create an immediate effect on the income statement but nevertheless affects the Group's economic value.
The Group takes measures to minimise interest rate risk by matching the interest rate profile and duration of assets with the Group's liabilities as well
as using derivative and non-derivative financial instruments to manage effectively the risk of an adverse impact on the Group's earnings.
Proprietary positions which are subject to interest rate risk fall under the scope of the Group's market risk management.
Up to 1 1-3 3-12 1-5 Over 5 month months months years years 31.12.2023 Fixed income securities .......................................................14,750 36,695 280,459 3,063,674 1,033,718 4,429,295 Short positions - fixed income securities ............................(3,730) (5,396) (32,720) (89,899) (131,745)Net imbalance 14,750 32,964 275,063 3,030,954 943,820 4,297,551 Up to 1 1-3 3-12 1-5 Over 5 month months months years years 31.12.2022 Fixed income securities .......................................................3,782 39,690 181,326 1,921,871 677,057 2,823,726 Short positions - fixed income securities ............................(9,447) (37,185) (1,656,872) 1,204,062 (986,665) (1,486,107)Net imbalance (5,665) 2,505 (1,475,545) 3,125,932 (309,608) 1,337,619
The breakdown of financial assets and liabilities in trading portfolios by the earlier of interest repricing time or maturity is specified as follows:
Consolidated Financial Statements 31 December 2023 49
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
52
56. Interest rate risk associated with non-trading portfolios
a. Breakdown
5
8
b. Sensitivity analysis
The Group performs monthly sensitivity analysis on financial assets and liabilities in non-trading portfolios subject to interest rate risk. The sensitivity
analysis assumes a shift in the yield curves for all currencies. A parallel shift in yield curves would have the following impact on the Group's pre-tax
profit and equity, assuming all other risk factors remain constant:
Shift in 31.12.2023 31.12.2022 Currency basis points Downward Upward Downward Upward ISK, indexed .................................................................................................50 (245,435) 228,724 (102,436) 90,744 ISK, non-indexed .........................................................................................100 396,558 (385,418) 322,905 (313,948)Other currencies ..........................................................................................20 1,223 (1,215) 28,068 (27,866)Total 152,346 (157,909) 248,537 (251,070)
The breakdown of financial assets and liabilities in non-trading portfolios by the earlier of interest repricing time or maturity is specified as follows:
31.12.2023 Financial assets Up to 1 1-3 3-12 1-5 Over 5 month months months years years Total Cash and balances with Central Bank .................................23,681,453 23,681,453 Fixed income securities .......................................................13,234,607 2,813,780 22,531,739 18,795,625 3,172,359 60,548,110 Loans to customers .............................................................118,422,687 5,472,017 5,631,528 6,488,964 308,287 136,323,481 Financial assets excluding derivatives 155,338,747 8,285,797 28,163,267 25,284,589 3,480,645 220,553,045 Effect of derivatives ............................................................24,309,020 33,360,561 13,512,749 945,276 803,219 72,930,826 Total 179,647,767 41,646,358 41,676,016 26,229,865 4,283,865 293,483,870 Financial liabilities Up to 1 1-3 3-12 1-5 Over 5 month months months years years Total Deposits ..............................................................................116,363,448 8,209,284 5,187,702 3,827,784 184,724 133,772,941 Borrowings ..........................................................................24,813,614 82,084 43,157 3,108 24,941,963 Issued bonds .......................................................................7,093,090 29,547,945 184,841 6,664,263 2,225,289 45,715,427 Subordinated liabilities .......................................................341,008 2,071,88 3,580,191 5,993,084 Financial liabilities excluding derivatives 148,270,151 37,839,312 5,756,708 12,567,040 5,990,203 210,423,415 Effect of derivatives ............................................................26,099,269 21,434,697 11,957,255 59,491,221 Total 174,369,421 59,274,009 17,713,963 12,567,040 5,990,203 269,914,636 Total interest repricing gap 5,278,346 (17,627,651) 23,962,053 13,662,825 (1,706,339) 23,569,235 31.12.2022Financial assets Up to 1 1-3 3-12 1-5 Over 5 month months months years years Total Cash and balances with Central Bank .................................33,839,478 2,831,108 36,670,586 Fixed income securities .......................................................4,853,617 11,997,237 20,978,404 19,745,282 4,762,141 62,336,681 Loans to customers .............................................................77,638,422 6,912,847 8,579,333 13,522,931 485,694 107,139,227 Financial assets excluding derivatives 116,331,518 21,741,191 29,557,737 33,268,213 5,247,836 206,146,495 Effect of derivatives ............................................................27,714,400 3,350,170 3,650,430 5,583,880 40,298,880 Total 144,045,918 25,091,361 33,208,167 38,852,093 5,247,836 246,445,375 Financial liabilities Up to 1 1-3 3-12 1-5 Over 5 month months months years years Total Deposits ..............................................................................94,808,020 8,818,784 4,896,286 3,579,710 142,397 112,245,198 Borrowings ..........................................................................9,620,237 16,891,542 815,369 792,861 28,120,009 Issued bonds .......................................................................11,554,059 17,595,928 517,012 6,373,228 2,063,188 38,103,414 Subordinated liabilities .......................................................206,026 766,46 2,713,957 3,686,451 Financial liabilities excluding derivatives 115,982,317 43,306,254 6,434,693 11,512,266 4,919,542 182,155,072 Effect of derivatives ............................................................14,399,102 10,483,122 1,168 24,883,392 Total 130,381,419 53,789,376 6,435,861 11,512,266 4,919,542 207,038,464 Total interest repricing gap 13,664,499 (28,698,015) 26,772,306 27,339,827 328,293 39,406,911
Consolidated Financial Statements 31 December 2023 50
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
52
57. Exposure towards changes in the CPI
a. Definition
b. Management
c. Balance of CPI linked assets and liabilities
d. Sensitivity to changes in CPI
58. Currency risk
a. Definition
b. Management
c. Hedge accounting
d. Exchange rates
The following exchange rates have been used by the Group in the preparation of these financial statements:
31.12.2023 31.12.2022 Assets .................................................................................................................................................................................34,860,451 30,670,431 Liabilities ............................................................................................................................................................................(23,177,052) (19,761,019)Total 11,683,398 10,909,412
Currency risk arises when financial instruments are not denominated in the functional currency of the respective Group entity and can affect both the
Group's income statement and statement of financial position. A part of the Group's financial assets and liabilities is denominated in foreign
currencies.
Currency positions are monitored by risk management and reported to the ALCO committee. Any mismatch between assets and liabilities in each
currency is monitored closely and managed within limits.
The Group is subject to limits set by the Central Bank of Iceland regarding the maximum open currency position. At 31 December 2023 and 31
December 2022 the Group's position in foreign currencies was within those limits.
Closing Average Closing Average 31.12.2023 2023 31.12.2022 2022 EUR/ISK ..............................................................................................................................150.5 149.2 151.5 140.9 USD/ISK ..............................................................................................................................136.2 137.9 142.0 132.5 GBP/ISK ..............................................................................................................................173.2 171.5 170.8 166.4
The Group applies hedge accounting according to IAS 39 against translation of foreign operations. Currency swap agreements are used as a hedge
instrument against translation difference arising from foreign operations.
Given the net balance of CPI linked assets and liabilities, a 1% change in the CPI would, with other things constant, result in the following changes to
the Group's pre-tax profit.
31.12.2023 31.12.2022 -1% 1% -1% 1% Government bonds ............................................................................................................(58,667) 58,667 (74,357) 74,357 Other fixed income securities ............................................................................................(21,561) 21,561 (42,622) 42,622 Loans to customers ............................................................................................................(236,126) 236,126 (95,730) 95,730 Derivatives .........................................................................................................................(32,251) 32,251 (93,995) 93,995 Short positions ...................................................................................................................683 (683) 4,064 (4,064) Deposits .............................................................................................................................81,464 (81,464) 73,605 (73,605) Issued bonds ......................................................................................................................89,710 (89,710) 83,077 (83,077) Subordinated liabilities ......................................................................................................59,913 (59,913) 36,865 (36,865)(116,834) 116,834 (109,094) 109,094 The effect on equity would be the same.
Exposure towards changes in CPI is the risk that fluctuations in the Icelandic Consumer Price Index (CPI) will affect the balance and cash flow of
indexed financial instruments.
The Group is exposed to inflation indexation of assets and liabilities denominated in ISK. All indexed assets and liabilities are valued according to the
CPI measure at any given time and changes in CPI are recognised in the income statement.
The Group controls its indexation risk through derivatives contracts and sales and purchases of indexed bonds, mostly government bonds, and thus
keeps its exposure to the CPI within the limits set by the ALCO committee.
Consolidated Financial Statements 31 December 2023 51
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
58
58. Currency risk (cont.)
e. Breakdown of financial assets and financial liabilities denominated in foreign currencies
1
3,080,348
* Comparative information has been restated, reference is made to note 3 for further information.
31.12.2022* Financial assets Other EUR USD GBP SEK currencies Total Cash and balances with Central Bank ......................................374,239 2,088,077 2,898,400 65,546 427,832 5,854,094 Fixed income securities ............................................................0 3,080,348 Shares and other variable income securities ...........................217 2,543,043 1,201,003 28,692 88,988 3,861,943 Securities used for hedging ......................................................290,170 195,634 887 16,111 78,795 581,598 Loans to customers ...................................................................1,359,546 28,619,678 69,092 30,048,316 Intangible assets .......................................................................2,611,243 2,611,243 Other assets ..............................................................................690,326 774,579 794,141 30 12,036 2,271,112 Financial assets excluding derivatives 2,714,498 8,681,681 36,125,352 110,379 676,742 48,308,653 Derivatives ................................................................................7,720,865 3,154,406 1,252 6,866,708 127,232 17,870,463 Total 10,435,363 11,836,088 36,126,604 6,977,087 803,974 66,179,115 Financial liabilities Other EUR USD GBP SEK currencies Total Deposits ...................................................................................3,525,844 8,044,039 1,189,823 169,010 329,463 13,258,178 Borrowings ................................................................................120,959 718,232 15,674,280 16,513,471 Issued bonds .............................................................................1,296,978 4,026,488 6,866,708 12,190,174 Insurance contract liabilities ....................................................68,475 119,567 1,258 3,945 83,301 276,547 Other liabilities .........................................................................234,879 1,030,777 1,182,692 28,925 82,961 2,560,234 Financial liabilities excluding derivatives 5,247,135 9,912,615 22,074,541 7,068,588 495,726 44,798,604 Derivatives ................................................................................5,709,257 73,919 14,749,424 5,657 248,976 20,787,234 Total 10,956,393 9,986,534 36,823,965 7,074,245 744,701 65,585,838 Net currency position Other EUR USD GBP SEK currencies Total Financial assets .........................................................................10,435,363 11,836,088 36,126,604 6,977,087 803,974 66,179,115 Financial liabilities ....................................................................(10,956,393) (9,986,534) (36,823,965) (7,074,245) (744,701) (65,585,838) Financial guarantee contracts ..................................................119,564 119,564 Total (401,465) 1,849,553 (697,361) (97,159) 59,273 712,841
31.12.2023 Financial assets Other EUR USD GBP SEK currencies Total Cash and balances with Central Bank ......................................2,922,506 657,800 2,109,634 79,125 255,219 6,024,284 Fixed income securities ............................................................1,503,990 13,834,864 15,338,855 Shares and other variable income securities ...........................88,400 242,497 1,539,466 12,880 1,883,243 Securities used for hedging ......................................................657,191 1,167,816 1,413 1,656,645 2,703 3,485,768 Loans to customers ...................................................................2,280,065 478,715 28,876,368 47,414 31,682,562 Intangible assets .......................................................................2,540,412 2,540,412 Other assets ..............................................................................849,032 1,236,043 718,974 163 2,804,212 Financial assets excluding derivatives 8,301,183 17,617,736 35,786,267 1,748,651 305,498 63,759,336 Derivatives ................................................................................11,811,725 1,328,055 4,467,242 15,253,051 10,870,463 43,730,536 Total 20,112,909 18,945,791 40,253,509 17,001,701 11,175,962 107,489,872 Financial liabilities Other EUR USD GBP SEK currencies Total Deposits ...................................................................................2,286,689 7,057,779 756,682 28,189 281,357 10,410,697 Borrowings ................................................................................122,840 830,698 14,816,743 15,770,282 Issued bonds .............................................................................1,292,489 1,990,376 15,220,348 10,837,164 29,340,377 Insurance contract liabilities ....................................................0 Other liabilities .........................................................................527,123 669,394 803,960 5 4,616 2,005,098 Financial liabilities excluding derivatives 4,229,142 8,557,872 18,367,762 15,248,542 11,123,136 57,526,454 Derivatives ................................................................................15,861,328 10,352,601 22,199,121 1,692,775 105,127 50,210,951 Total 20,090,469 18,910,472 40,566,883 16,941,318 11,228,263 107,737,405 Net currency position Other EUR USD GBP SEK currencies Total Financial assets .........................................................................20,112,909 18,945,791 40,253,509 17,001,701 1,175,962 107,489,872 Financial liabilities ....................................................................(20,090,469) (18,910,472) (40,566,883) (16,941,318) (11,228,263) (107,737,405) Financial guarantee contracts ..................................................75,250 75,250 Total 97,689 35,319 (313,374) 60,384 (52,302) (172,283)
Consolidated Financial Statements 31 December 2023 52
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
58
58. Currency risk (cont.)
f. Sensitivity to currency risk
59. Equity risk
a. Definition
b. Sensitivity analysis of equity risk
60. Operational risk
a. Definition
b. Management
The analysis below calculates the effect of possible movements in equity prices that affect the Consolidated Financial Statements. A negative amount
in the table reflects a potential net reduction in the Consolidated Income Statement or equity, while a positive amount reflects a potential net
increase. Investments in associates are excluded.
31.12.2023 31.12.2022 -10% +10% -10% +10% Listed shares ............................................................................................................................(51,270) 51,270 (487,926) 487,926 Unlisted shares ........................................................................................................................(202,767) 202,767 (732,521) 732,521 Unlisted unit shares in funds ...................................................................................................(131,710) 131,710 (720,604) 720,604 Total (385,748) 385,748 (1,941,051) 1,941,051
Given the net currency position, a 10% change in the value of the ISK would, with other things constant, result in the following changes to the Group's
Consolidated Income Statement or equity.
The individual business units within the Group are primarily responsible for managing their respective operational risk. The risk management unit is
furthermore responsible for identifying, monitoring and reporting the Group's operational risk. Operational risk can be reduced through staff
training, process re-design and enhancement of the control environment. The risk management unit monitors operational risk by tracking loss
events, quality deficiencies, potential risk indicators and other early-warning signals. The unit takes an active role in internal control and quality
management.
Operational risk is the risk of direct or indirect loss from inadequate or failed internal processes or systems, from human error or external events that
affect the Group's reputation and operational earnings.
31.12.2023 31.12.2022 Assets and liabilities denominated in foreign currencies -10% +10% -10% +10% EUR ..........................................................................................................................................9,769 (9,769) (40,147) 40,147 USD ..........................................................................................................................................3,532 (3,532) 184,955 (184,955) GBP ..........................................................................................................................................(31,337) 31,337 (69,736) 69,736 SEK ...........................................................................................................................................6,038 (6,038) (9,716) 9,716 Other currencies ......................................................................................................................(5,230) 5,230 5,927 (5,927)Total (17,228) 17,228 71,284 (71,284)
Equity risk is the risk that the fair value of equites decreases as the result of changes in the value of shares and other variable income securities in the
Group’s portfolio.
Consolidated Financial Statements 31 December 2023 53
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
60
Financial assets and financial liabilities
61. Accounting classification of financial assets and financial liabilities
* Comparative information has been restated, reference is made to note 3 for further information.
The accounting classification of financial assets and financial liabilities is specified as follows:
Manda- 31.12.2022* Fair value torily at Total Financial assets Amortised through fair value carrying cost OCI through P/L amount Cash and balances with Central Bank ...............................................................................36,670,586 36,670,586 Fixed income securities ....................................................................................................54,934,612 10,225,796 65,160,407 Shares and other variable income securities ...................................................................19,410,508 19,410,508 Securities used for hedging ..............................................................................................13,841,853 13,841,853 Loans to customers ...........................................................................................................105,928,837 1,210,390 107,139,227 Derivatives ........................................................................................................................4,940,738 4,940,738 Other assets ......................................................................................................................11,883,489 11,883,489 Total 154,482,912 54,934,612 49,629,285 259,046,809 Manda- Fair value torily at Total Financial liabilities Amortised through fair value carrying cost OCI through P/L amount Deposits ...........................................................................................................................112,245,198 112,245,198 Borrowings ........................................................................................................................28,120,009 28,120,009 Issued bonds .....................................................................................................................38,103,414 38,103,414 Subordinated liabilities .....................................................................................................3,686,451 3,686,451 Short positions held for trading ........................................................................................1,486,107 1,486,107 Short positions used for hedging ......................................................................................1,343,186 1,343,186 Derivatives ........................................................................................................................1,609,537 1,609,537 Other liabilities .................................................................................................................9,364,820 373,715 9,738,535 Total 191,519,893 0 4,812,545 196,332,437
Manda- 31.12.2023 Fair value torily at Total Financial assets Amortised through fair value carrying cost OCI through P/L amount Cash and balances with Central Bank ...............................................................................23,681,453 23,681,453 Fixed income securities ....................................................................................................61,293,556 3,683,849 64,977,406 Shares and other variable income securities ...................................................................3,857,480 3,857,480 Securities used for hedging ..............................................................................................16,852,313 16,852,313 Loans to customers ...........................................................................................................135,641,049 682,433 136,323,481 Derivatives ........................................................................................................................2,497,877 2,497,877 Other assets ......................................................................................................................10,401,128 10,401,128 Total 169,723,630 61,293,556 27,573,952 258,591,138 Manda- Fair value torily at Total Financial liabilities Amortised through fair value carrying cost OCI through P/L amount Deposits ...........................................................................................................................133,772,941 133,772,941 Borrowings ........................................................................................................................23,817,062 23,817,062 Issued bonds .....................................................................................................................45,715,427 45,715,427 Subordinated liabilities .....................................................................................................5,993,084 5,993,084 Short positions held for trading ........................................................................................131,745 131,745 Short positions used for hedging ......................................................................................4,230 4,230 Derivatives ........................................................................................................................2,044,723 2,044,723 Derivatives used for hedge accounting ............................................................................152,182 152,182 Other liabilities .................................................................................................................16,189,231 404,762 16,593,993 Total 225,487,745 152,182 2,585,460 228,225,386
Consolidated Financial Statements 31 December 2023 54
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
60
62. Financial assets and financial liabilities measured at fair value
a.
-
-
-
b.
c.
Inputs are quoted market prices (unadjusted) in active markets for identical instruments.
Level 1
Level 2
Inputs are not observable or unobservable inputs have a significant effect on the valuation. This category includes instruments that are valued
based on quoted prices for similar instruments for which significant unobservable adjustments are required to reflect the differences between
the instruments.
Inputs are not quoted market prices but are observable either directly, i.e. as prices, or indirectly, i.e. derived from prices. This category includes
financial instruments valued using quoted prices in active markets for similar instruments, quoted prices for similar or identical instruments in
markets that are considered less than active and other instruments which are valued using techniques which rely primarily on inputs that are
directly or indirectly observable from market data.
Level 3
The fair value of financial assets and liabilities that are traded in active markets are based on quoted market prices. For other financial instruments
the Group determines fair value using various valuation techniques. IFRS 13 specifies a fair value hierarchy based on whether the inputs to those
valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources whereas
unobservable inputs reflect the Group's market assumptions. These two types of inputs result in the following fair value hierarchy:
The Group uses widely recognised valuation techniques, including net present value and discounted cash flow models, comparison with similar
instruments for which market observable prices exist, Black-Scholes and other valuation models.
Fair value hierarchy
Valuation process
The Bank's Credit committee is responsible for fair value measurements of financial assets and financial liabilities classified as level 2 or level 3
instruments. The valuation is carried out by personnel from respective departments under supervision from Risk. The valuations are revised at least
quarterly, or when there are indications of significant changes in the underlying inputs.
Valuation techniques
For more complex instruments, the Group uses proprietary models, which usually are developed from recognised valuation models. Some or all of
the inputs into these models may not be market observable and are derived from market prices or rates or are estimated based on assumptions.
When entering into a transaction, the financial instrument is recognised initially at the transaction price, which is the best indicator of fair value,
although the value obtained from the valuation model may differ from the transaction price. This initial difference, usually an increase in fair value,
indicated by valuation techniques is recognised in income depending upon the individual facts and circumstances of each transaction and no later
than when the market data becomes observable.
The value produced by a model or other valuation technique is adjusted to allow for a number of factors as appropriate, because valuation
techniques cannot appropriately reflect all factors market participants take into account when entering into a transaction. Valuation adjustments
are recorded to allow for model risks, bid-ask spreads, liquidity risks, as well as other factors. Management believes that these valuation
adjustments are necessary and appropriate to fairly state financial instruments carried at fair value in the statement of financial position.
Valuation techniques include recent arm's length transactions between knowledgeable, willing parties, if available, reference to the current fair
value of other instruments that are substantially the same, the discounted cash flow analysis and option pricing models. Valuation techniques
incorporate all factors that market participants would consider in setting a price and are consistent with accepted methodologies for pricing financial
instruments. Periodically, the Group calibrates the valuation technique and tests it for validity using prices from any observable current market
transactions in the same instrument, without modification or repackaging, or based on any available observable market data.
Consolidated Financial Statements 31 December 2023 55
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
60
62. Financial assets and financial liabilities measured at fair value (cont.)
d.
Fair value hierarchy classification
The fair value of financial assets and financial liabilities measured at fair value in the statement of financial position is classified into the fair value
hierarchy as follows:
Shares and other variable income securities amounting to ISK 692 million were reclassified from Level 3 following the acquisition of a majority
shareholding in Ortus Secured Finance ltd. during the year 2022.
31.12.2023 Financial assets Carrying Level 1 Level 2 Level 3 amount Mandatorily measured at fair value through profit and loss Fixed income securities ................................................................................................3,465,191 104,584 114,075 3,683,849 Shares and other variable income securities ...............................................................1,237,775 102,362 2,517,343 3,857,480 Securities used for hedging ..........................................................................................16,852,313 16,852,313 Loans to customers .......................................................................................................682,433 682,433 Derivatives ....................................................................................................................2,497,877 2,497,877 Measured at fair value through other comprehensive income Fixed income securities ................................................................................................61,293,556 61,293,556 Total 82,848,836 2,704,822 3,313,851 88,867,508 Financial liabilities Carrying Level 1 Level 2 Level 3 amount Mandatorily measured at fair value through profit and loss Short positions held for trading ....................................................................................131,745 131,745 Short positions used for hedging ..................................................................................4,230 4,230 Derivatives ....................................................................................................................1,185,091 859,631 2,044,723 Other liabilities ..............................................................................................................404,762 404,762 Measured at fair value through other comprehensive income Derivatives used for hedge accounting ........................................................................152,182 152,182 Total 135,975 1,337,273 1,264,394 2,737,641
31.12.2022Financial assets Carrying Level 1 Level 2 Level 3 amount Mandatorily measured at fair value through profit and loss Fixed income securities ................................................................................................5,524,639 4,085,852 615,304 10,225,796 Shares and other variable income securities ...............................................................8,723,913 3,249,312 7,437,283 19,410,508 Securities used for hedging ..........................................................................................13,841,853 13,841,853 Loans to customers .......................................................................................................1,210,390 1,210,390 Derivatives ....................................................................................................................4,940,738 4,940,738 Measured at fair value through other comprehensive income Fixed income securities ................................................................................................54,934,612 54,934,612 Total 83,025,017 12,275,902 9,262,978 104,563,897 Financial liabilities Carrying Level 1 Level 2 Level 3 amount Mandatorily measured at fair value through profit and loss Short positions held for trading ....................................................................................1,486,107 1,486,107 Short positions used for hedging ..................................................................................1,343,186 1,343,186 Derivatives ....................................................................................................................917,824 691,713 1,609,537 Other liabilities ..............................................................................................................373,715 373,715 Total 2,829,293 917,824 1,065,428 4,812,545
Consolidated Financial Statements 31 December 2023 56
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
60
62. Financial assets and financial liabilities measured at fair value (cont.)
e.
f.
g.
Fair value measurements for Level 3 financial assets
Level 3 assets consist primarily of unlisted bonds, shares and share certificates and loans measured at fair value. Each asset is evaluated separately
but assets within an asset group share a valuation method. The following valuation methods are in use:
The Group believes its estimates represent appropriate approximations of fair value and that the use of different valuation methodologies and
reasonable changes in assumptions or unobservable inputs would not significantly change the estimates.
A 10% change in the estimates would have the following effect on profit before taxes:
the financial strength of the entity in question, recent trades if any and multipliers for comparable instruments.
The effect of unobservable inputs in Level 3 fair value measurements
Book value Asset classMethodSignificant unobservable inputRange31.12.2022 Unlisted bonds Expected recoveryValue of assets0-95%615,304 Unlisted variable income securitiesMarket priceRecent trades-7,437,283 Loan to customersExpert modelValue of assets and collateral-1,210,390 Total 9,262,978 Given the methods used, the possible range of the significant unobservable inputs is wide. When determining the values used the Group considers
+10% -10% Fixed income securities ........................................................................................................................................................11,407 (11,407) Shares and other variable income securities .......................................................................................................................251,734 (251,734) Loans to customers ...............................................................................................................................................................65,107 (65,107)Total 328,249 (328,249)
Reconciliation of changes in Level 3 fair value measurements
Book value Asset classMethodSignificant unobservable inputRange31.12.2023 Unlisted bondsExpected recoveryValue of assets0-95%114,075 Unlisted variable income securitiesMarket priceRecent trades-2,517,343 Loans to customersExpert modelValue of assets and collateral-651,074 Total 3,282,491
Shares and Fixed other var. income income Loans to Other Other 31.12.2023 securities securities customers assets Derivatives liabilities Total Balance as at 1 January 2023 615,304 7,437,283 1,210,390 0 (691,713) (373,715) 8,197,550 Total gains and losses in profit or loss ........... 130,943 987,969 (21,186) (11,159) (31,048) 1,055,519 Additions ........................................................ 380,542 1,085,457 40,000 (156,759) 1,349,240 Repayments .................................................... (162,024) 0 (578,130) (740,155)Disposals ......................................................... 0 (2,246,400) (2,246,400)Reclassified as assets held for sale ................. (850,690) (4,746,966) (5,597,656)Balance as at 31 December 2023 114,075 2,517,343 651,074 0 (859,631) (404,762) 2,018,098
Shares and Fixed other var. income income Loans to Other Other 31.12.2022 securities securities customers assets Derivatives liabilities Total Balance as at 1 January 2022 794,538 8,383,419 2,524,269 30,202 0 (483,486) 11,248,942 Total gains and losses in profit or loss ........... (33,760) 1,979,597 208,872 1,939 (4,532) (17,646) 2,134,470 Additions ........................................................ 581,656 1,096,404 245,626 (687,181) 1,236,505 Repayments .................................................... (1,768,377) (29,480) 127,417 (1,670,440)Disposals ......................................................... (864,483) (3,193,004) (2,661) (4,060,148)Reclassification ............................................... 137,353 (137,353) 0 Transfers in (out) Level 3 ................................ 0 (691,779) (691,779)Balance as at 31 December 2022 615,304 7,437,283 1,210,390 0 (691,713) (373,715) 8,197,550
Consolidated Financial Statements 31 December 2023 57
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
60
63. Financial assets and financial liabilities not measured at fair value
Deposits and other borrowings are typically either short-term or have variable interest rates. Other liabilities consist primarily of accounts payables,
withholding taxes and other short-term payables. The carrying amount of these liabilities is therefore considered a reasonable approximation of
their fair value.
The Group holds financial instruments which are not measured at fair value. Except for loans to customers, the Group believes that the best
estimate of the fair value of these financial instruments is equal to the carrying amount at the reporting date and does therefore not report a fair
value for these financial instruments. Loans to customers measured at amortised cost are classified as level 3, in the fair value hierarchy, and have a
book value of ISK 135,641 million at end of December 2023. The estimated fair value of loans to customers measured at amortised cost at end of
December 2023 is ISK 135,289 million.
Cash and balances with Central Bank includes several components as detailed in note 19. These assets are either balances available on-demand or
on very short notice, or other assets easily converted to cash. Other financial assets consist primarily of short-term receivables. The carrying amount
of these assets is therefore a reasonable approximation of their fair value.
Consolidated Financial Statements 31 December 2023 58
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
63
Other information
64. Pledged assets
65. Related parties
a. Definition of related parties
b. Arm's length
c. Balances with related parties
d. Transactions with related parties
66. Remuneration policy
The Board of Directors has adopted a remuneration policy at the proposal of the Remuneration Committee. The Bank's Annual General Meeting
approved the Bank's current remuneration policy in March 2023. The Board of Directors will submit an updated remuneration policy for approval at
the Bank's Annual General Meeting in 2024.
The Group has pledged assets, in the ordinary course of banking business, to the Central Bank of Iceland to secure general settlement in the Icelandic
clearing system. Cash pledged to secure the borrowing of securities from other counterparties than the Central Bank of Iceland is classified as other
assets. Furthermore, the Group has pledged loans to customers as collateral against asset backed bonds that it has issued.
The Group has a related party relationship with the board members of the Bank, the CEO of the Bank and key employees (together referred to as
management), associates as disclosed in note 26, shareholders with significant influence over the Bank, close family members of individuals
identified as related parties and entities under the control or joint control of related parties.
Settlement and Securities Asset backed 31.12.2023 committed facilities borrowing securities Total Cash and balances with Central Bank ..................................................................................0 973,538 27,853 1,001,391 Fixed income securities .......................................................................................................6,392,856 249,194 0 6,642,050 Loans to customers ..............................................................................................................21,340,531 0 1,118,990 22,459,521 Other assets .........................................................................................................................0 52,979 0 52,979 Total27,733,387 1,275,711 1,146,843 30,155,941
Settlement and Securities Asset backed 31.12.2022 committed facilities borrowing securities Total Cash and balances with Central Bank ..................................................................................144,695 1,041,158 0 1,185,853 Fixed income securities .......................................................................................................4,215,900 469,862 0 4,685,761 Loans to customers ..............................................................................................................20,691,396 0 2,519,168 23,210,564 Other assets .........................................................................................................................0 0 0 0 Total25,051,992 1,511,020 2,519,168 29,082,179
31.12.2023 Assets Liabilities Management ..........................................................................................................................................................................5,861 77,974 Associates ...............................................................................................................................................................................0 28,639 Total 5,861 106,613
Interest Interest Other Other 2022 income expense income expense Management .......................................................................................................................0 1,857 2,285 447 Associates ............................................................................................................................0 0 0 90,896 Total 0 1,857 2,285 91,343
Transactions with related parties are carried out at arm's length and subject to an annual review by the Bank's internal auditor.
Further information about salaries and benefits paid to the Board of Directors, the CEO and Managing Directors is provided in note 12.
The remuneration policy conforms to Articles 57 a and 57 b of Act No. 161/2002 on Financial Undertakings, Act No. 2/1995 on Public Limited
Companies, the Icelandic FSA's rules No. 388/2016 on Incentive Schemes and Act No. 25/2003 on Sustainable Finance Disclosure. A more detailed
description of the policy can be found on the Bank's website, www.kvika.is.
31.12.2022 Assets Liabilities Management ..........................................................................................................................................................................0 44,424 Associates ...............................................................................................................................................................................0 7,408 Total 0 51,832
Interest Interest Other Other 2023 income expense income expense Management .......................................................................................................................0 2,836 9,122 4,981 Associates ............................................................................................................................0 0 0 251,998 Total 0 2,836 9,122 256,979
Consolidated Financial Statements 31 December 2023 59
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
63
67. Incentive scheme
a. Description
b. Performance based payments through profit and loss
c. On-balance sheet deferred performance based payments
68. Share-based payments
a. Description
General share option plan, cf. Art. 10 of Act No. 90/2003
Other share options, cf. the Bank´s incentive scheme
The Bank has issued share options in accordance with authorisations of its annual general meeting, the Group's remuneration policy and incentive
scheme. At year end 2023, there were outstanding share options based on two separate share option plans, a general share option plan, cf. Art. 10 of
Act No. 90/2003, and a share option plan based on the Bank's incentive scheme.
In 2022, the Bank, on the basis of an authorisation by the Annual General Meeting of Kvika banki hf., held on 31 March 2022, granted share options
to certain employees of the Group on the basis of the Bank´s incentive scheme. The share options were granted in order to align the long-term
interests of the Group and said employees. The employees paid for the share options with a deferred part of performance based payments. For the
share options the employees paid a total of ISK 94.5 million by using deferred performance based payments. The cost of these share option
agreements is ISK 94.5 million based on the Black-Scholes calculation model but in return previously expensed performance based payments were
cancelled.
On 21 April 2021 the Annual General Meeting of the Bank authorised the Board of Directors to approve a general share option plan in accordance
with Article 10 of the Income Tax Act No. 90/2003 for all employees of Kvika and its subsidiaries. On 10 November 2021 the Bank’s Board of Directors
approved a share option plan which was approved by Iceland Revenue and Customs on 9 December 2021.
The objective of the share-based payments is to integrate the interests of employees with the long-term goals of the Group. The calculation of the
purchase price was based on weighted average price in transactions with shares of the Bank for ten whole business days prior to each contract date.
The options do not allow for cash settlement. Furthermore, the options are conditional on the employee remaining employed by the Bank, or its
subsidiaries, and various other conditions.
The plan was implemented on 15 December 2021 and on that date each eligible employee was offered a share option for up to ISK 1,500,000 per
year the following three years, in total for up to ISK 4,500,000. Employees hired in 2022 were on 15 December 2022 offered a share option for the
remaining two years according to the plan. Employees hired in 2023 were on 15 December 2023 offered a share option for the remaining last year
according to the plan.
The cost of the share option agreements was calculated using the Black-Scholes calculation model and amounted to ISK 175 million for those issued
in the year 2021, ISK 35 million for those issued in the year 2022 and ISK 12 million for those issued in 2023.
The stock option plan expires on 15 December 2024 and no further stock options will be entered into under the current plan. No decision has been
made whether or not another general stock option plan, cf. Art. 10 of Act No. 90/2003, will be implemented.
The Board of Directors has approved a performance based incentive scheme at the proposal of the Remuneration Committee. The scheme forms a
part of the remuneration policy adopted by the Bank.
31.12.2023 31.12.2022 Deferred cash payments ........................................................................................................................................................37,016 72,867 Total 37,016 72,867
The incentive scheme is set forth in accordance with Article 57 b of Act No. 161/2002 on Financial Undertakings and the Icelandic FSA's rules No.
388/2016 on Incentive Schemes. Performance based payments may consist, in part or in full, of shares or share-linked instruments, such as warrants
or stock options for shares in the Company. Payments according to the scheme are based on key performance indicators (KPIs) that reflect the goals
of the Bank, the division and the employee. The basis for performance based pay reflects sound risk management and does not induce excessive risk
taking. Performance based pay to individual employees shall not exceed 25% of their annual salary and 40% of the performance based pay shall be
deferred for three years. Performance based pay that does not exceed 10% of annual salary is not subject to deferral. A more detailed description of
the scheme can be found in the Bank's remuneration policy on it's website, www.kvika.is.
2023 2022 * Cash Cash Non-deferred ..........................................................................................................................................................................157,334 131,456 Deferred ..................................................................................................................................................................................17,992 5,769 Salary related expenses ..........................................................................................................................................................38,269 42,636 Total 213,595 179,861
Consolidated Financial Statements 31 December 2023 60
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
63
68. Share-based payments (cont.)
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In 2023, the Bank, on the basis of the same authorisation from the Annual General Meeting in 2022, granted share options to four employees of the
Group on the basis of the Bank´s incentive scheme. The share options were assigned as a a deferred part of recruitment bonuses that were granted
between December 2022 to April 2023. The stock options are granted in order to align the long-term interests of the company and said employees.
The cost of these share option agreements is ISK 14.7 million based on the Black-Scholes calculation model.
The main terms of the share options are as follows:
In certain instances, the Group is entitled to revoke the share options in part or in whole in line with FME rules.
The exercise price of the share options is ISK 22.495 per share, which is equivalent to the weighted average price in transactions with shares of the
company on Nasdaq OMX Iceland for ten business days prior to the contract date, with 7.5% annual interest over the period, and the exercise
price shall be adjusted for dividends that may be decided until the exercise period begins.
The share options may be exercised in 2025, during an exercise period of three months where in that period the strike continues to accrue with
7.5% annual interest until the option is exercised.
In general, share options shall lapse if the share option holder's employment relationship with the company is terminated until the beginning of
the exercise period.
The Bank's CEO, deputy CEO and the executive management of the group commit to retain, until the end of their employment, shares which
market value correspond to profit after taxes of utilised share options until the value of the shares owned by those individuals is equivalent to 12
months’ salary for Kvika´s CEO and deputy CEO and six months’ salary for other members of the executive management.
The vesting period of the share options is 36 months from grant date of the share options. Following that the share options may be exercised for a
period of three months where in that period the strike continues to accrue with 7.5% annual interest until the option is exercised. However, in the
event of a merger involving a dissolution of the company or if there is a change in the company's control, the share options will become fully
vested.
In general, share options shall lapse if the share option holder's employment relationship with the company is terminated before the end of the
vesting period.
The options do not allow for cash settlement.
b. The following share options are in existence at year endNumber ofExercisesharesExercise priceShare options (in ths.)year(ISK) Issued in 2021 (ISK 1,500,000) - General share option plan, cf. Art. 10 of Act No. 90/2003 .......................16,906 2024 26.44 Issued in 2022 (ISK 1,500,000) - General share option plan. cf. Art. 10 of Act No. 90/2003 .......................5,515 2024 20.12 Issued in 2022 - Other share options, cf. the Bank´s incentive scheme ......................................................37,971 2025 21.69 Issued in 2023 (ISK 1,500,000) - General share option plan. cf. Art. 10 of Act No. 90/2003 .......................4,027 2024 15.27 Issued in 2023 - Other share options, cf. the Bank´s incentive scheme ......................................................5,059 2026 20.1769,478
The value of the share options was determined by an independent specialist and the value is in line with the laws and rules applicable to bonus
payments of financial undertakings.
The options do not allow for cash settlement.
The main terms of the share options are as follows:
The exercise price of the share options is ISK 20.107 per share, which is equivalent to the weighted average price in transactions with shares of the
company on Nasdaq OMX Iceland for ten business days prior to the contract date, with 7.5% annual interest over the period, and the exercise
price shall be adjusted for dividends that may be decided during the vesting period.
Executive managers within the Group commit to retain, until the end of their employment, shares which market value correspond to profit after
taxes of utilised share options until the value of the shares owned by those individuals is equivalent to six months’ salary.
The value of the share options was determined by an independent specialist and the value is in line with the laws and rules applicable to bonus
payments of financial undertakings.
In certain instances, the Group is entitled to revoke the share options in part or in whole in line with FME rules.
c. Movements in the number of share options outstanding and their related weighted average exercise pricesAverage Share exercise price options per share(thousands) At 1 January 2022 ...................................................................................................................................................................26.44 55,484 Granted in 2022 ......................................................................................................................................................................21.98 51,110 Forfeited in 2022 ....................................................................................................................................................................26.44 (18,495) At 31 December 2022 .............................................................................................................................................................23.85 88,099 Granted in 2023 ......................................................................................................................................................................18.00 9,086 Forfeited in 2023 ....................................................................................................................................................................24.81 (27,707) At 31 December 2023 .............................................................................................................................................................22.24 69,478 Exercisable share options at 31 December 2023 ...................................................................................................................0
Consolidated Financial Statements 31 December 2023 61
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
63
69. Shareholders of the Bank
70. Other matters
On-site inspection by the Financial Supervisory Authority of the Central Bank
Discontinuation of merger negotiations with Íslandsbanki hf.
Tax treatment of warrants sold by the Bank
71. Events after the reporting date
There are no material events after the reporting date.
As the Iceland revenue and customs has not yet concluded its review, the Bank has not charged any amount to its income statement nor made any
changes to the tax returns for the respective years.
As a part of its supervisory role the FME regularly conducts on-site inspections on the Bank's operations, either theme based or circumstantial. The
FME conducted such an inspection of the Bank’s anti money laundering measures in the first quarter of 2023 and the Bank received a report with
draft findings towards the end of the third quarter of 2023. The draft findings indicate some deficiencies in the Bank's compliance with the relevant
legal framework. When the FME issues final reports on its inspections, the findings are usually made public by the FME and, depending on the
circumstances, the Bank. The Bank takes its legal obligations very seriously and has already started working on the detected findings in the draft
report.
The Bank is aware of that the Iceland revenue and customs ("Skatturinn") is currently reviewing the tax treatment of warrants that the Bank sold
during the years 2017 to 2019. The Iceland revenue and customs is looking into whether the warrants should be taxed as perquisites instead of as a
financial instruments. Should that be the case, then the Bank would be required to pay the respective social security tax and tax on financial activity.
The Bank would however be able to deduct the amount of salary related expenses, as well as the amount of the perquisites, from its tax base for the
respective years in question, and thereby increase its deferred tax losses.
In June 2023 the board of directors of Kvika announced that it had decided to discontinue the merger negotiations with Íslandsbanki hf. The decision
was taken in light of the events which followed the publication of a report from the FME on its inspection into the execution of the offering by the
Icelandic State of a 22.5% stake in the share capital of Íslandsbanki hf. and the fact that it was decided to call for a shareholder meeting at
Íslandsbanki hf., where an election for the board of directors would take place. However, it is the opinion of the board of directors of Kvika that the
benefits of a merger of the companies could be significant. Kvika's board will continue to keep an eye out for opportunities in the financial market.
Beneficial owners are defined as owners holding a share of 10% or greater, directly or indirectly. The information presented is, among other things,
based on publicly available information.
31.12.2023 31.12.2022 Shareholder Country % % Beneficial owners Lífeyrissjóður verzlunarmanna ........................Iceland 9.56% 9.13% Lífeyrissjóður starfsmanna ríkisins A-deild ......Iceland 7.89% 7.64% Stoðir hf. ..........................................................Iceland 7.01% 6.59% Birta lífeyrissjóður ............................................Iceland 6.00% 4.80% Gildi - lífeyrissjóður ..........................................Iceland 5.43% 4.66% Stapi lífeyrissjóður ...........................................Iceland 3.54% 3.07% Lífsverk lífeyrissjóður .......................................Iceland 2.55% 2.43% Frjálsi lífeyrissjóðurinn .....................................Iceland 2.31% 1.58% Almenni lífeyrissjóðurinn .................................Iceland 2.30% 2.23% Arion banki hf. .................................................Iceland 1.92% 3.41% Landsbréf - Úrvalsbréf hs. ................................Iceland 1.83% 1.48% Investment fund managed by Landsbréf hf. Lífeyrissjóður starfsmanna ríkis B-deild ..........Iceland 1.78% 1.78% Stefnir - Innlend hlutabréf hs. ..........................Iceland 1.60% 1.68% Investment fund managed by Stefnir hf. Fossar fjárfestingarbanki hf. ............................Iceland 1.45% 0.01% Sigla ehf. ...........................................................Iceland 1.43% 1.32% Tómas Kristjánsson (100%) Attis ehf. ...........................................................Iceland 1.40% 1.35% Guðmundur Örn Þórðarson (100%) Landsbankinn hf. ..............................................Iceland 1.28% 1.49% SNV Holding ehf. ..............................................Iceland 1.27% 1.29% Svanhildur Nanna Vigfúsdóttir (100%) Vanguard Emerging Markets Stock ..................USA 1.25% 0.83% Investment fund managed by The Vanguard Group, Inc. Vanguard Total International S ........................USA 1.21% 0.78% Investment fund managed by The Vanguard Group, Inc. Others, each less than 1% ................................35.75% 39.44% 2023: 2856, 2022: 297498.77% 97.00% Treasury shares ................................................1.23% 3.00% Total 100.00% 100.00%
Consolidated Financial Statements 31 December 2023 62
Kvika banki hf.
Notes to the Consolidated Financial Statements
0
Significant accounting policies Page
72 Basis of consolidation ...............................................................................
64
73 Foreign currency .......................................................................................
65
74 Interest income and expense ....................................................................
65
75 Fee and commission income and expense ...............................................
65
76 Net financial income .................................................................................
66
77 Dividend income .......................................................................................
66
78 Administrative expenses ...........................................................................
66
79 Employee benefits ....................................................................................
66
80 Income tax .................................................................................................
66
81 Financial assets and financial liabilities ....................................................
67
82 Offsetting ...................................................................................................
68
83 Determination of fair value .......................................................................
68
84 Impairment ................................................................................................
69
85 Cash and balances with Central Bank .......................................................
71
86 Fixed income securities .............................................................................
71
87 Shares and other variable income securities ............................................
71
88 Securities used for hedging .......................................................................
71
89 Loans to customers ...................................................................................
72
90 Derivatives .................................................................................................
72
91 Investments in associates .........................................................................
72
92 Investment properties ...............................................................................
72
93 Intangible assets ........................................................................................
73
94 Operating lease assets ..............................................................................
73
95 Property and equipment ...........................................................................
74
96 Other assets ...............................................................................................
74
97 Deposits ....................................................................................................
74
98 Borrowings ................................................................................................
74
99 Issued bills .................................................................................................
74
100 Issued bonds .............................................................................................
74
101 Subordinated liabilities .............................................................................
74
102 Short positions held for trading ................................................................
74
103 Short positions used for hedging ..............................................................
75
104 Other liabilities ..........................................................................................
75
105 Assets and disposal groups held for sale ..................................................
75
106 Right of use asset and lease liability .........................................................
75
107 Financial guarantees .................................................................................
75
108 Share capital ..............................................................................................
75
109 Nature and purpose of equity reserves ....................................................
76
110 Earnings per share .....................................................................................
76
111 New standards and interpretations ..........................................................
76
112 Use of estimates and judgements .............................................................
77
Consolidated Financial Statements 31 December 2023 63
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
Significant accounting policies
72. Basis of consolidation
a. Subsidiaries
b. Business combinations
c. Non-controlling interest
d. Fiduciary services
e. Transactions eliminated on consolidation
f. Structured entities
The accounting policies set out below have been applied consistently to all periods presented in these Consolidated Financial Statements, and have
been applied consistently by Group entities.
The Group provides custody services, fund management and discretionary and advisory investment management services which require the Group
to make decisions on the handling, acquisition or disposal of financial instruments on behalf of its clients.
The financial statements of managed funds and investment portfolios managed by the Group on behalf of customers are not included in the
financial statements, as they do not constitute assets or liabilities of the Group.
Intra-group balances, income and expenses, and unrealised gains and losses arising from intra-group transactions, are eliminated in preparing the
consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of
the Group's interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no
evidence of impairment. This also applies to subsidiaries classified as disposal groups held for sale.
The Group acts as investment manager or investment advisor, for example, to a number of investment funds operated by the fund management
company Kvika eignastýring hf. The purpose of such a fund management company is to generate fees from managing assets on behalf of third‐party
investors by providing investment strategies. These investment funds are financed through the issue of units to investors. The Group has no
contractual obligation to provide financial support to these structured entities.
From time to time, the Group makes seed capital investments in certain fund products in order to establish track records for new products, to test
new investment strategies or to launch new products at a viable minimum size.
The Group has set up a formal procedure to assess whether or not to consolidate investment funds managed and administered by the Group on
behalf of its customers and other investors in the consolidated financial statements. As part of this assessment, the Group reviews all facts and
circumstances including the purpose and design of the investment fund, to determine whether the Group, as fund manager, is acting as agent or
principal. The Group is deemed to be a principal when the Group acts as fund manager and cannot be removed without cause, has variable returns
through significant holdings and is able to influence the returns of the funds by exercising its power.
Structured entities are entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual
arrangements.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the
definition of a financial instrument is classified as equity, then it is not remeasured and settlement is account for within equity. Otherwise, other
contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration
are recognised in profit and loss.
Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the entity. The Group reassesses its relationship with an entity
when there is a change in one or more of the elements of control.
The Group uses the acquisition method to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value, at the
date of exchange, of the assets given, liabilities incurred or assumed and equity instruments issued. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent
of any minority interest.
The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recognised as goodwill. If the
cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised immediately in the income
statement.
Non-controlling interest represent the portion of profit or loss and equity not owned, directly or indirectly, by the Bank. Non-controlling interest is
presented separately in the income statement and is included in equity in the statement of financial position, separately from equity attributable to
owners of the Bank.
The Group chooses on an acquisition-by-acquisition basis whether to measure non-controlling interest in an acquiree at fair value or according to
the proportion of non-controlling interests in the acquiree's net assets. Changes in the Bank's ownership interest in a subsidiary that do not result in
a loss of control are accounted for as equity transactions. In such circumstances the carrying amounts of the controlling and non-controlling interests
are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling
interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Bank.
Consolidated Financial Statements 31 December 2023 64
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
73. Foreign currency
a. Foreign currency transactions
b. Foreign operations
74. Interest income and expense
Effective interest rate
Amortised cost and gross carrying amount
Presentation
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75. Fee and commission income and expense
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Translation differences on foreign operations are presented as a separate category in the statement of changes in equity.
Interest income and expense are recognised in the income statement using the effective interest method. The effective interest rate is the rate that
exactly discounts estimated future cash flows through the expected life of the financial instrument to the gross carrying amount of the financial
asset or the amortised cost of the financial liability. When calculating the effective interest rate for financial instruments other than purchased or
originated credit-impaired assets, the Group estimates future cash flows considering all contractual terms of the financial instrument but not ECL.
For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated using estimated future cash flows
including ECL.
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial
recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference
between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance. The gross carrying
amount of a financial asset is the amortised cost of a financial asset before adjusting for any expected credit loss allowance.
Transactions in foreign currencies are translated into the functional currency of the respective Group's entity using the exchange rate at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the exchange rate
at the reporting date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are
translated using the exchange rate at the date the fair value was determined.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into the functional
currency at spot exchange rate current at the reporting date. The income and expenses of foreign operations are translated into the functional
currency at the spot exchange rates at the dates of the transactions.
financial assets at fair value through other comprehensive income (FVOCI)
Interest income and expense presented in the income statement includes interest on:
Foreign currency differences are posted as a separate line item under net financial income as disclosed in notes 8 and 76.
Fees attributable to a specific service or action are recognised as income when the service has been performed. Examples of such fees are
brokerage and payment commissions
financial assets at fair value through profit and loss
Fee and commission income and expense are recognised in the income statement when an agreement with a customer meets all of the following
criteria:
Fees that are earned gradually as the services are performed, such as management fees in asset management, are recognised as income at the
rate these services are delivered. In practice, these are on a straight line basis
derivatives
The Group earns income from providing various services to its customers. This includes fees for managing assets on behalf of customers,
commissions received for equity and bond transactions and fees and commissions for various other financial services. Fee and commission income
and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest
rate.
financial assets and liabilities measured at amortised cost
the parties to the contract have approved the contract and are committed to perform their respective obligations
performance obligations have been established for services to be transferred
the payment terms have been established for the services to be transferred
the transaction price can be allocated to each individual service in the agreement
it is probable that a consideration will be collected in exchange for the services that will be transferred to the customer
The following applies to recognition of income for various types of fees and charges:
Consolidated Financial Statements 31 December 2023 65
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
76. Net financial income
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77. Dividend income
78. Administrative expenses
79. Employee benefits
a. Short-term employee benefits
b. Defined contribution plans
c. Share-based payments
80. Income tax
Short-term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is
recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive
obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Fair value changes of loans to customers held at fair value
Unwinding, interest and exchange rate change of technical provision
The deferred income tax asset and/or liability has been calculated and recognised in the statement of financial position. The calculation is based on
the difference between assets and liabilities as presented in the tax return on the one hand, and in the consolidated financial statements on the
other, taking into consideration tax losses carried forward. This difference is due to the fact that the tax assessment is based on premises that differ
from those governing the financial statements, mostly due to temporary differences arising from the recognition of revenue and expense in the tax
returns and in the financial statements.
Deferred tax assets and tax liabilities are offset in the statement of financial position when there is a legal right to settle on a net basis and they are
levied by the same taxing authority on the same entity or on different entities subject to joint taxation.
Current tax liabilities include the estimated tax payable next year on current year's profit according to the tax rates prevailing at reporting date, in
addition to corrections on tax from previous years.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
Administrative expenses comprise expenses other than interest expenses, fee and commission expenses and expenses related to fair value changes.
A breakdown of administrative expenses is provided in note 10.
Obligations for contributions to defined contribution plans are expensed in profit or loss as the related service is provided. The Group has no further
obligations once those contributions have been paid.
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at grant date. The grant date fair value
of equity-settled share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in
equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to
reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount
ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the
vesting date.
Income tax comprises current and deferred tax. Income tax is recognised in the income statement, except to the extent that it relates to items
recognised directly in other comprehensive income or equity, in which case it is recognised there.
Realised and unrealised gains or losses from price changes of variable income securities
Interest income from fixed income securities carried at fair value through profit or loss
Dividends
Fair value changes in derivatives
Foreign exchange difference
Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date for equity securities. Dividends
are presented as a component of net financial income.
Net financial income comprises the following:
Realised and unrealised gains or losses from price changes of fixed income securities measured at fair value
Consolidated Financial Statements 31 December 2023 66
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
81. Financial assets and financial liabilities
a. Recognition
b. Classification
Financial assets
Financial assets at amortised cost
Financial assets at fair value through other comprehensive income (FVOCI)
Financial assets at fair value through profit or loss (FVTPL)
Business model assessment
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the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are
managed;
The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way
the business is managed and information is provided to management. The information considered includes:
the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management's strategy
focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the
duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets;
how the performance of the portfolio is evaluated and reported to the Group's management;
Impairment on financial assets measured at amortised cost is calculated using the expected credit loss approach. Loans and debt securities
measured at amortised cost are presented net of allowance for credit losses in the Consolidated Statement of Financial Position.
Financial assets at fair value through profit or loss are measured in the Consolidated Statement of Financial Position at fair value. Loans to customers
which are measured at fair value through profit or loss are assets whose cash flows do not represent payments that are solely payments of principal
and interest but are non-trading assets. Interest on loans to customers measured at fair value through profit or loss is recognised as interest income.
Changes in fair value, as well as any gains or losses realised on disposal, are recognised in the line item Net financial income (expense) in the
Consolidated Income Statement.
how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets managed or the contractual
cash flows collected; and
the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However,
information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group's stated objective for
managing the financial assets is achieved and how cash flows are realised.
Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at fair value through
profit or loss because they are neither held to collect contractual cash flows nor held to both collect contractual cash flows and to sell financial
assets.
Financial assets classified at fair value through profit or loss are all other financial assets which are not classified at amortised cost or at fair value
through other comprehensive income. This includes financial assets classified mandatorily at fair value through profit or loss and financial assets
which are irrevocably designated by the Group at initial recognition as at fair value through profit or loss that would otherwise meet the
requirements to be measured at amortised cost or at fair value through other comprehensive income. The Group may designate financial assets as
at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Fixed income securities may be classified as financial instruments measured at fair value through other comprehensive income ("FVOCI") when they
meet the classification criteria. Interest income is calculated using the effective interest rate. Interest income and foreign exchange gains or losses
are recognised in the Consolidated Statement of Comprehensive Income. Fixed income securities classified as FVOCI are subject to impairment
measurement using the expected credit loss approach. Fair value measurements are recognised in Other Comprehensive Income while on
derecognition, cumulative gains (losses) recognised in Other Comprehensive Income are reclassified to the Consolidated Statement of Income.
A financial asset is measured at amortised cost if the contractual terms of the financial asset give rise to cash flows that are solely payment of
principal and interest and the asset is held within a business model whose objective is to collect contractual cash flows, i.e. Held to collect. After
initial measurement, financial assets in this category are carried at amortised cost using the effective interest rate method. Amortisation is included
in interest income in the Consolidated Income Statement. The majority of the Group's loans to customers are carried at amortised cost using the
effective interest rate method. Interest on loans to customers is recognised as interest income.
The Group's financial assets are classified into one of three measurement categories, i.e. i) at amortised cost, ii) at fair value through other
comprehensive income or iii) at fair value through profit or loss. The measurement basis of individual financial assets is determined based on an
assessment of the cash flow characteristics of the assets and the business models under which they are managed.
The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which they are
originated. All other financial assets and liabilities are initially recognised on the trade date, which is the date when the Group becomes a party to
the contractual provisions of the instrument.
Consolidated Financial Statements 31 December 2023 67
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
81.
Financial assets and financial liabilities (cont.)
Cash flow characteristics assessment
Reclassifications
Financial liabilities
Derecognition
Financial assets
Financial liabilities
82. Offsetting
83. Determination of fair value
Income and expenses are presented on a net basis for gains and losses arising from a group of similar transactions, such as in the Group's trading
activity, or other circumstances permitted by International Financial Reporting Standards.
A financial asset is derecognised when the contractual rights to the cash flows from the asset expire, or when the Group enters into a transaction in
which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is
created or retained by the Group is recognised as a separate asset or liability.
Where the contractual terms introduce exposure to other risk or variability of cash flows that are inconsistent with a basic lending arrangement, the
related financial asset is classified and measured at fair value through profit or loss.
Financial assets held within the business models Held to collect and Held to collect and sell are assessed to evaluate if their contractual cash flows
are comprised of solely payments of principal and interest (SPPI). SPPI payments are those which are consistent with a basic lending arrangement.
Principal is the fair value of the financial asset at initial recognition and may change over the life of the instruments, e.g. due to repayments. Interest
relates to basic lending returns, including compensation for the time value of money and credit risk associated with the principal amount
outstanding and for other basic lending risks (expected losses, liquidity risks and administrative costs), as well as a profit margin.
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model and if the
change is significant to the Group's operations.
The Group's financial liabilities are classified into one of two measurement categories, i.e. at amortised cost or at fair value through profit or loss.
Financial liabilities held for trading are measured at fair value through profit or loss, all other financial liabilities are measured at amortised cost.
Financial liabilities measured at amortised cost are initially recognised at fair value, which is typically equal to cost, i.e. cash advanced less any
transaction costs. They are subsequently measured at amortised cost using the effective interest method. Accrued interest, in the case of interest
bearing liabilities is included in the carrying amount. Interest expense is recognised in net interest income.
The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially
all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not derecognised. Examples of
such transactions are securities lending and sale and repurchase agreements.
Financial liabilities are derecognised when the obligation of the Group is discharged, cancelled or expires.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of
a liability reflects its non-performance risk. When available, the Group measures the fair value of an instrument using the quoted price in an active
market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to
provide pricing information on an ongoing basis.
Financial assets and liabilities are offset, and the net amount reported in the statement of financial position, when there is a legally enforceable right
to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the
consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value
is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data
from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at
initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the
instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and
minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into
account in pricing a transaction. For further information on valuation techniques, refer to notes 62 - 63.
Consolidated Financial Statements 31 December 2023 68
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
84. Impairment
Expected Credit Loss
-
-
-
-
-
-
1.
2.
3.
The Group measures the ECL on each balance sheet date according to a three-stage expected credit loss impairment model.
The general approach
Stage 2 covers financial assets that have deteriorated significantly in credit quality since initial recognition (unless the low credit risk simplification
has been applied and is relevant) but that do not have objective evidence of a credit loss event.
Stage 1 covers financial assets that have not deteriorated significantly in credit quality since initial recognition or (where the optional low credit risk
simplification is applied) have low credit risk.
Stage 3 covers financial assets that have objective evidence of a credit loss event at the reporting date.
12-month expected credit losses are recognised in stage 1, while lifetime expected credit losses are recognised in stages 2 and 3. IFRS 9 draws a
distinction between financial instruments that have not deteriorated significantly in credit quality since initial recognition and those that have.
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial
instrument.
An asset moves from 12-month expected credit losses to lifetime expected credit losses when there has been a significant deterioration in credit
quality since initial recognition. Hence the ‘boundary’ between 12-month and lifetime losses is based on the change in credit risk not the absolute
level of risk at the reporting date.
There is also an important operational simplification that permits companies to stay in ‘12‐month expected credit losses’ if the absolute level of
credit risk is ‘low’. This applies even if the level of credit risk has increased significantly.
There is also a third stage. This applies to assets for which there is objective evidence of impairment. In Stage 3 the credit loss allowance is still based
on lifetime expected losses but the calculation of interest income is different.
In the periods subsequent to initial recognition, interest is calculated based on the amortised cost net of the loss provision, whereas the calculation
is based on the gross carrying value in Stages 1 and 2.
Finally, it is possible for an instrument for which lifetime expected credit losses have been recognised to revert to 12-month expected credit losses
should the credit risk of the instrument subsequently improve so that the requirement for recognising lifetime expected credit losses is no longer
met.
Lifetime expected credit losses
Lifetime expected credit losses are the expected shortfalls in contractual cash flows, taking into account the potential for default at any point during
the life of the financial instrument.
Expected credit losses
12 month expected credit losses
contract assets;
loan commitments issued; and
financial guarantee contracts issued.
For trade receivables and contract assets without a significant financing component a simplified (lifetime expected loss) approach can be applied.
For assets that are credit-impaired at purchase or origination lifetime expected loss approach shall be applied.
For other assets/exposures a general (or three-stage) approach shall be applied.
The Group estimates an ECL for each of these types of assets or exposures. However, IFRS 9 specifies three different approaches depending on the
type of asset or exposure:
debt instruments measured at fair value through other comprehensive income;
finance lease receivables measured at amortised cost;
The Group recognises loss allowances for ECL on the following financial instruments that are not measured at FVTPL:
debt instruments measured at amortised cost;
12-month expected credit losses are a portion of the lifetime expected credit losses. They are calculated by multiplying the probability of a default
occurring on the instrument in the next 12 months by the total (lifetime) expected credit losses that would result from that default. They are not the
expected cash shortfalls over the next 12 months. They are also not the credit losses on financial instruments that are forecast to actually default in
the next 12 months.
Expected credit losses are defined as the difference between all the contractual cash flows that are due to an entity and the cash flows that it
actually expects to receive (‘cash shortfalls’). This difference is discounted at the original effective interest rate (or credit-adjusted effective interest
rate for purchased or originated credit-impaired financial assets).
Consolidated Financial Statements 31 December 2023 69
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
84. Impairment (cont.)
-
-
-
-
-
-
-
1.
2.
to stage 2, depending on the origination grade. However, the Group considers risk grades less than 5 for corporations to be low risk and therefore
excludes any movement between categories that does not result in a rating above that level. Ratings above 10 are considered to indicative of default
and therefore warrant elevation to stage 3 unless overridden based on other available information or expert judgement. The Group doesn’t consider
grading migrations for individuals but considers risk grades below certain thresholds, regardless of original score, as significant increased risk.
Migration of one risk class in the UK portfolio is indication of significant increase in credit risk.
Risk Management is responsible for managing the credit risk of the Group which includes a qualitative SICR assessment. Risk Management reviews
on a monthly basis large exposures, unsecured loans and loans that are past due on a loan by loan basis.
Probability of default and credit risk rating
The Group utilises an economic forecast and the current 12 month PD for the purpose of estimating lifetime PD for loans in stage 2. The 12 month
PD is adjusted with a survival rate for each year until maturity with the following formula: PD
t
= PD
12
* SR
t
where PD
12
is the 12 month PD from the
credit rating model and SR
t
is the survival rate at time t, which is calculated recursively as SR
t
= SR
t-1
* (1-PD
t
). The Group monitors the
appropriateness of the assumption as a part of it’s yearly validation and monitoring process. The PD assessment for portfolios in the UK is primarily
individually assessment done by credit specialists based on payment history and general creditworthiness where performing customers are ranked
in three different risk classes.
When considering whether a significant increase in credit risk (SICR) has occurred the Group considers both quantitative and qualitative factors. In
general the Group will rely on a quantitative analysis based on the PD model but will additionally consider qualitative factors based on the
information available to the Group.
The Group has defined the following criteria’s for SICR:
30 days past due of any of the client's exposures
Definition of default
The Group utilises an external Probability of Default model (PD model) developed and maintained by Creditinfo Iceland, an Icelandic credit bureau,
for the domestic portfolios. The PD model is based on information compiled by Creditinfo on the creditworthiness of corporates and individuals in
Iceland based both on personal and demographic factors. It predicts the probability of default in the next 12 months. The model has been calibrated
to using historical default rate information representative of the Group's domestic portfolio. The model is designed as a point in time model and
correlation between forecasted and actual default rates and macroeconomic forecasts has been identified. This enables the Group to calculate
different forward looking probabilities of default given different forecasts for changes in inflation rate and unemployment rate. Lifetime PD for
loans in stage 3 is 100% as by definition they are already in default.
Qualitative SICR assessment
Origination gradeThreshold grade1727374757687889910Migration of corporations by one or two risk grades in the PD model is considered to be a significant increase in risk and therefore warrant a transfer
the reason for reported default triggers is known to the Bank and not considered to be lack of willingness or ability to pay.
The Risk Management department can manually override automatic default triggers if the following applies:
the borrower is registered in public records as filed for bankruptcy, has terminated his business or is no longer a going concern;
re‐financing of borrower’s exposures is expected and has been confirmed.
the borrower is considered to be unlikely to pay as determined by the Bank's Risk Management department. Events that are likely to lead to
default as determined by the Risk Management department include the following:
- breach of covenants of loan commitments;
- loan concessions or stressed restructuring; or
- High risk classification based on Risk Management's internal risk assessment.
the borrower has been in default in accordance with above at any point for the previous three months.
the borrower is 90 days past due of one of his exposures with the Bank;
the borrower is registered as in delinquency by Creditinfo (Icelandic: vanskilaskrá) and has payment in 30 days or longer delinquency with the
Group;
The Group considers a financial asset to be in default if one of the following applies:
Quantitative SICR assessment
Grading migrations – SICR has occurred if the current grade has increased compared to the origination grade. For the domestic portfolio, more or
equal to the following thresholds are considered to be significant increase in credit risk:
Significant increase in credit risk
Consolidated Financial Statements 31 December 2023 70
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
84. Impairment (cont.)
Forward looking probability weighted scenarios
85. Cash and balances with Central Bank
86. Fixed income securities
87. Shares and other variable income securities
88. Securities used for hedging
Committed facilities
The Group considers the lifetime of each exposure to be the contractual maturity of each loan. The Group considers this to be the case as any
lending subsequent to that period would be based on an independent lending decision at that time based on the prevailing market terms. The
Group only considers contractual cash flows when estimating exposure at default. The average lifetime of the Group's exposures is relatively short
and it does therefore not consider the likelihood of prepayment when concluding on the lifetime of the assets.
The Group considers the off-balance portion of exposure at default to be 50% (credit conversion factor) of any facilities not drawn upon that are
considered committed. Such facilities include overdrafts, credit cards and guarantees. The credit conversion factor is subject to expert review on a
case by case basis. The Bank does not consider credit line facilities to be committed facilities as disbursements are subject to predetermined
conditions and constitute a separate credit review. These predetermined conditions will in most cases lead directly to an increase in posted
collateral and disbursements therefore stay within acceptable collateral coverage.
Exposure at default
Expected credit loss measurement
Shares and other variable income securities consist of equity investments and unit shares in mutual funds. Shares and other variable income
securities are initially measured at fair value and subsequently accounted for depending on their classification as discussed in note 81.
Securities used for hedging consist of non-derivative financial assets that are used to hedge the Group's exposure arising from derivative contracts
with customers. Securities used for hedging are measured at fair value as discussed in note 81.
Loss Given Default (LGD). This is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and
those that the lender would expect to receive, including from any collateral. It is expressed as a percentage of EAD and derived from value of
underlying collaterals.
Lifetime definition
IFRS 9 requires the Group to determine an expected credit loss (ECL) amount on a probability-weighted basis as the difference between the cash
flows that are due to the Group in accordance with the contractual terms of a financial instrument and the cash flows that the Group expects to
receive. The Group has implemented an ECL model which is consistent with regulatory and best practices. The model is based on four components.
Probability of Default (PD). This is an estimate of the likelihood of default over a given time horizon. The Bank uses an external PD model developed
by CreditInfo for the domestic portfolio and individual assessment done by credit specialists in special cases and for the UK portfolio.
Fixed income securities are initially measured at fair value and subsequently accounted for depending on their classification as discussed in note 81.
Exposure at Default (EAD). This is an estimate of the exposure at a future date, taking into account expected changes in the exposure after the
reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities.
Cash and balances with Central Bank are carried at amortised cost in the statement of financial position.
Cash and balances with Central Bank include notes and coins on hand, balances held with the Central Bank and other financial institutions, and
highly liquid financial assets with original maturities of three months or less from the acquisition date that are subject to an insignificant risk of
changes in their fair value, and are used by the Group in the management of its short-term commitments.
Discount rate. This is used to discount an expected loss to present value at the reporting date using the effective interest rate (EIR) at initial
recognition.
The Group's management has identified and probability weighted three macro‐economic scenarios for the purpose of calculating expected credit
loss. The medium term domestic forecasts of macro‐economic variables and scenario weights are based on the Group‘s management judgement and
are applied for the loan portfolios that are affected by the macro-economic variables. The Group incorporates the following forward‐looking macro‐
economic variables into its probability weighted expected credit loss calculations: (i) unemployment rate and (ii) inflation rate. The Group has not
developed macro-economic forecasts for the UK portfolio, but macro-economic forecasts effect the LGD assessment.
Consolidated Financial Statements 31 December 2023 71
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
89. Loans to customers
90. Derivatives
-
-
-
91. Investments in associates
92. Investment properties
The contract requires no initial investment or an initial investment that is smaller than would be required for other types of contracts that would
be expected to have a similar response to changes in market factors
An investment property is an asset which is specified for leasing to third parties, for returns or for both purposes. Investment properties are initially
recognised at cost and subsequently measured at fair value. Changes in fair value are recognised as gains or loss in the income statement.
Settlement takes place at a future date
The Group uses derivatives for trading purposes and to hedge its exposure to market price risk, foreign exchange risk and inflation and interest risk
arising from operating, financing and investing activities.
Derivative assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position. Derivatives
with positive fair values are classified as financial assets and derivatives with negative fair values as financial liabilities. Revenue from derivatives is
split into interest income and net income from financial instruments at fair value and presented in the corresponding line items in the income
statement.
Loans are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and include loans provided by
the Group to its customers, participation in loans from other lenders and purchased loans that are not quoted in an active market and which the
Group has no intention of selling immediately or in the near future. Finance lease receivables are a part of the line item Loans to Customers.
Loans are initially recognised at fair value, which is the cash advanced, plus any transaction costs. Subsequently, they are measured at amortised
cost using the effective interest method. Accrued interest is included in the carrying amount of the loans and advances. The carrying amount of
impaired loans is reduced through the use of an allowance account.
When the Group purchases a financial asset and simultaneously enters into an agreement to resell the asset, or a substantially similar asset, at a
fixed price at a future date ("reverse repo" or "stock borrowing"), the arrangement is accounted for as a loan and the underlying asset is not
recognised in the Group's statement of financial position.
A derivative is a financial instrument or another contract that falls under the scope of IFRS 9 and generally has the following three characteristics:
Its value changes due to changes in an underlying variable, such as bond price, share price, security or price index (including CPI), foreign
currency exchange rate or interest rate
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant
influence generally exists when the Group holds between 20% and 50% of the voting power, including potential voting rights, if any. Investments in
associates are initially recognised at cost.
If the Group's share of loss exceeds its interest in an associate, the Group's carrying amount is reduced to zero and recognition of further losses is
discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. If the
associate subsequently reports profits, the Group resumes recognising its share of those profits only after its share of the profits equals the share of
losses not recognised.
The Group's share of the total recognised gains and losses of associates is included in the financial statements of the Group on an equity accounted
basis, from the date the significant influence commences until the date it ceases.
Consolidated Financial Statements 31 December 2023 72
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
93. Intangible assets
a.
-
-
-
-
-
b.
c.
d.
94. Operating lease assets
Goodwill arises in business combinations. It is recognised as of the acquisition date and measured as the aggregate of (a) the fair value of the
consideration transferred, (b) the recognised amount of any non-controlling interest in the acquiree, and (c) the fair value of any previously held
equity interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all
measured as at the acquisition date. The consideration transferred includes the fair value of assets transferred, liabilities incurred and equity
interests issued by the Group. In addition, consideration transferred includes the fair value of any contingent consideration.
Initial recognition
The Group uses the cost model for measurement after recognition and intangible assets are carried at cost less any accumulated amortisation and
any accumulated impairment losses. Intangible assets are reviewed for indications of impairment or changes in estimated future economic benefits
at each reporting date. If such indications exist, then the asset's recoverable amount is estimated. Goodwill is tested annually for impairment.
Intangible assets are initially recognised at cost.
Subsequent measurement
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that is largely
independent of the cash inflows of other assets or cash generating units (CGUs). Goodwill arising from a business combination is allocated to CGUs
or groups of CGUs that are expected to benefit from the synergies of the combination.
Operating lease assets are recognised at cost less depreciation and impairment. Depreciation is calculated and recognised in the income statement
on a straight-line basis based on estimated useful life, taking into account the residual value.
Asset categories
Amortisation
Intangible assets with finite useful life are amortised using the straight-line method over their estimated useful economic life, with the amortisation
recognised in the income statement. The estimated useful life of intangible assets is as follows:
Software comprise acquired software licences and external costs associated with the development of bespoke applications.
Goodwill
Development cost that has been capitalised is amortized on the day that the product is launched using the straight line method over their useful
life, but not exceeding 10 years.
Brands
Brands have been acquired as part of recent acquisitions and are capitalised and amortised using the straight line method over their useful life,
but not exceeding 20 years.
Customer relationships have been acquired as part of recent acquisitions and are capitalised and amortised using the straight line method over
their useful life of maximum 16 years.
Customer relationships
Customer relationships .....................................................................................................................................................................................7-16 years Brands ...............................................................................................................................................................................................................4-20 years Software and other ...........................................................................................................................................................................................3-10 years
Depreciation of property and equipment and amortisation of intangible assets are presented together as a separate line item in administrative
expenses as disclosed in note 10. Further breakdown on depreciation of intangible assets is provided in note 28.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated
future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and
then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had
been recognised.
The Group groups intangible assets into four categories:
Software and other
Consolidated Financial Statements 31 December 2023 73
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
95. Property and equipment
a.
-
-
b.
c.
d.
e.
96. Other assets
97. Deposits
98. Borrowings
99. Issued bills
100. Issued bonds
101. Subordinated liabilities
102. Short positions held for trading
Asset categories
Deposits consist of time deposits and demand deposits. Money market deposits are included in borrowings. Deposits are recognised at amortised
cost, including accrued interest.
Subsequent cost
Short positions are obligations of the Group to deliver financial assets borrowed by the Group and sold to third parties. Short positions are carried at
fair value through profit or loss with all fair value changes recognised in the income statement under net financial income.
Subordinated liabilities are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised cost
using the effective interest method. Accrued interest is included in their carrying amount.
Issued bills are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised cost using the
effective interest method. Accrued interest is included in their carrying amount.
The Group groups tangible assets into two categories:
Real estate, which includes office and residential buildings, land and building rights
Borrowings are mostly comprised of money market deposits. They are initially recognised at fair value less attributable transaction costs.
Subsequently, they are measured at amortised cost using the effective interest method. Accrued interest is included in their carrying amount.
When the Group sells a financial asset and simultaneously enters into an agreement to repurchase the asset, or a substantially similar asset, at a
fixed price at a future date ("repo" or "stock lending"), the arrangement is accounted for as a borrowing and the underlying asset continues to be
recognised in the Group’s statement of financial position.
Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of each component of an item of property
and equipment. The estimated useful lives are as follows:
Real estate ........................................................................................................................................................................................................15-50 years Other property and equipment ........................................................................................................................................................................3-5 years Where parts of an item of property and equipment have different useful lives, those components are accounted for separately.
The Group recognises in the carrying amount of an item of property and equipment the cost of replacing part of such an item when that cost is
incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured
reliably. The decision, if subsequent costs are added to the acquisition cost of property and equipment, is based on whether an identified
component, or part of such component, has been replaced or not, or if the nature of the subsequent cost means a contribution of a new
component. All other costs are expensed in the income statement when incurred.
Depreciation
Issued bonds are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised cost using the
effective interest method. Accrued interest is included in their carrying amount.
Other assets are measured at amortised cost.
Initial recognition
Property and equipment is initially recognised at cost, which includes direct expenses related to the purchase.
Subsequent measurement
The Group uses the cost model for the measurement after recognition and property and equipment is carried at cost less any accumulated
depreciation and any accumulated impairment losses. Property and equipment is reviewed for indications of impairment or changes in estimated
future economic benefits at each reporting date. If such indications exist, the assets are analysed to assess whether their carrying amount is fully
recoverable.
Other property and equipment, which includes automobiles for own use, furniture and fixtures, computers and other office equipment
Consolidated Financial Statements 31 December 2023 74
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
103. Short positions used for hedging
104. Other liabilities
105. Assets and disposal groups held for sale
106. Right of use asset and lease liability
107. Financial guarantees
108. Share capital
a. Treasury shares
b. Share premium
c. Dividends on share capital
The Group classifies an asset or disposal group as held for sale if its carrying amount will be recovered principally through a sale transaction rather
than through continuing use. For this to be the case the asset or disposal group must be available for immediate sale in its present condition subject
only to terms that are usual and customary for sales of such asset or disposal group and the sale must be highly probable.
Immediately before classification as held for sale, the measurement of the qualifying assets and all assets and liabilities in a disposal group is
brought up-to-date in accordance with applicable IFRS. Then, on initial classification as held for sale, assets and disposal groups are recognized at the
lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale are included in the Income
Statement, even when there is a revaluation. The same applies to gains and losses on subsequent remeasurement. Revaluation through the reversal
of impairment in subsequent periods is limited so that the carrying amount of the held for sale, assets or disposal groups does not exceed the
carrying amount that would have been determined had no impairment loss been recognized in prior years.
Short positions used for hedging are obligations of the Group to deliver financial assets borrowed by the Group and sold to third parties. Short
positions used for hedging consist of non-derivative financial liabilities that are used to hedge the Group's risk exposure arising from derivative
contracts with customers. Short positions used for hedging are carried at fair value through profit or loss with all fair value changes recognised in the
income statement under net financial income.
Other liabilities are measured at amortised cost, except for the contingent consideration which is measured at fair value.
Acquired own shares and other equity instruments (treasury shares) are deducted from equity. No gain or loss is recognised in income statement on
the purchase, sale, issue or cancellation of treasury shares. Consideration paid or received is recognised directly in equity. Incremental transaction
costs of treasury share transactions are accounted for as a deduction from equity, net of any related income tax benefit.
Share premium represents excess of payment above nominal value (ISK 1 per share) that shareholders have paid for shares sold by the Group.
Dividends on share capital are deducted from equity in the period in which they are approved by the Group's shareholders meetings.
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a
corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases and leases of low value
assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease. The
lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the
Group's incremental borrowing rate. The right-of-use assets comprise the initial measurement of the corresponding lease liability. They are
subsequently measured at cost less accumulated depreciation.
Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified
debtor fails to make payment when due in accordance with the terms of a debt instrument.
Financial guarantee liabilities are initially recognised at their fair value. The guarantee liability is subsequently measured at the higher of the loss
allowance determined in accordance with IFRS 9 and the amount initially recognised less, when appropriate, the cumulative amount of income
recognised in accordance with the principles of IFRS 15. Liabilities arising from financial guarantees are included with provisions.
Consolidated Financial Statements 31 December 2023 75
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
109. Nature and purpose of equity reserves
a. Option reserve
b. Deficit reduction reserve
c. Fair value reserve
d. Translation reserve
e. Restricted retained earnings
f. Retained earnings - accumulated deficit
110. Earnings per share
111. New standards and interpretations
IFRS 17 Insurance Contracts
In May 2017 the International Accounting Standards Board (IASB) published IFRS 17 Insurance Contracts which includes a complete review of the
requirements for accounting for companies which issue insurance contracts. The standard became effective on 1 January 2023 and replaces IFRS 4
Insurance Contracts, reference is made to note 3 for further information.
A number of new standards, amendments to standards and interpretations were not yet effective for the year ended 31 December 2023 and have
not been applied in the preparation of these financial statements. Early adoption of new standards and amendments is not planned.
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations, until
the operations are sold, dissolved or abandoned.
The fair value reserve represents fair value changes, net of tax, for assets held at fair value through other comprehensive income. The reserve is
released in correlation with realization of gains or losses of financial assets upon sale or derecognition.
The option reserve represents the cumulative charge to the income statement for options to purchase shares in the Bank granted under the Bank's
Remuneration policy, which is discussed in notes 66-68.
The deficit reduction reserve was created as a part of a share capital reduction approved by the Bank's Annual General Meeting in April 2014. The
reserve has no specified purpose and can only be used with the approval of a shareholders' meeting.
Retained earnings (accumulated deficit if negative) consists of undistributed profits and losses accumulated, less transfers to other reserves.
According to the Financial Statements Act No. 3/2006 the difference between share of profit of subsidiary or associate in excess of dividend payment
or dividend payment pending, shall be transferred to a restricted retained earnings reserve, net of tax, which is not subject to dividend payments.
When shareholding in subsidiary or associate is sold or written off the restricted retained earnings reserve shall be released and the amount
transferred to retained earnings.
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss that is
attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is
calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares,
which comprise share options granted to employees and issued warrants.
When development cost is capitalized a corresponding amount is transferred from retained earnings to restricted retained earnings according to the
Financial Statements Act No. 3/2006. The reserve is then transferred back to retained earnings in line with amortization of the asset through income
statement.
Consolidated Financial Statements 31 December 2023 76
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
71
112. Use of estimates and judgements
a.
b.
c.
d.
f.
Assets and disposal groups held for sale
Assets and discontinued operations held for sale are measured at the lower of carrying amount and fair value, less cost to sell. As outlined in note 4,
this applies to a subsidiary of the Group. The fair value at the date of classification of the subsidiary was calculated using valuation models based on
discounted future cash flows that incorporated significant non-market observable inputs and assumptions. The use of reasonably possible
alternative inputs and assumptions to these models, in particular changes to the discount rate employed (representing the required rate of return
on equity), could have an impact on the value of these disposal groups.
Judgement is required to determine the extent to which deferred tax assets are recognised in the statement of financial position, based on the likely
timing and level of future taxable profits.
Fair value of financial instruments
The fair value of financial instruments that are not quoted in active markets is determined using valuation techniques which are reviewed regularly
as discussed in note 62.
The areas where the use of judgements and estimates has the most significant effect on the amounts recognised in the statement of financial
position or the income statement are disclosed in this note.
Impairment of financial assets
As outlined in note 84, the use of estimates and judgement is an important component of the calculation of impairment losses. The methodology
and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss
estimates and actual loss experience. Unforeseen events could, however, result in further impairment losses which would have a material effect on
the income statement and statement of financial position.
Deferred tax assets
In the process of applying the Group's accounting policies, management makes use of judgements and estimates which are based on various
assumptions. These judgements and estimates can affect the reported amounts of assets and liabilities, income and expense.
Assumptions and estimates are based on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances, and are reviewed on an on-going basis. The estimates form the basis for judgements about the carrying value
of assets and liabilities that are not readily available from other sources and actual results may differ. Judgement may also be required in
circumstances not involving estimates, e.g. when determining the substance of a particular transaction, contract or relationship.
Impairment of intangible assets
The carrying amount of intangible assets are reviewed annually to determine whether there is indication of impairment as disclosed in note 93. If
any such indication exists the asset's recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset exceeds
its recoverable amount.
Consolidated Financial Statements 31 December 2023 77
78
Appendix1:
StatementontheCorporate
GovernanceofKvikabankihf.2023
Unaudited
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Corporate Banking & Capital Markets provide a range of professional services in the fields of specialised financing, securities and foreign exchange
transactions and corporate finance services. Capital Markets provide customers with comprehensive services in securities and foreign exchange brokerage.
The Corporate Finance segment provides advice on the acquisition, sale and merger of companies and business entities, financing businesses via stock or
bond auctions, listing and delisting stocks and bonds. The Corporate Banking segment provides businesses, institutions, and investors with specialised
lending to finance such things as real estate, real estate development, securities transactions and other investments. The division also uses the Bank’s
infrastructure to distribute loans to other institutional investors.
Kvika’s UK operations are operated through the subsidiary Kvika Securities ltd. (hereinafter referred to as “KSL”). KSL, established in 2017, is a subsidiary
regulated in the United Kingdom by the Financial Supervisory Authority. KSL’s focus is on corporate finance, as well as fund and asset management
services. Further, the property lender Ortus Secured Finance, is a subsidiary of KSL and specializes in property backed lending in the UK.
In 2023, changes were made to the organisational structure of sustainability matters in Kvika’s operations. A special sustainability committee is in place and
is now composed of the CEO, CFO and managing directors of subsidiaries and divisions as well as the Director of Sustainability. The sustainability
department moved from the CEO’s office into the Operations and Development division.
Insurance operations of Kvika are operated through its subsidiary, TM Insurance, which has a rich history and over 60 years of experience. TM Insurance
offers a universal and highly diversified product offering to commercial and private customers and its main insurance categories include Motor, Property,
Marine, Liability, Accident and Life insurance. TM Insurance operates in accordance with Act no. 100/2016 on insurance activities and is licensed in the
European Economic Area and in the Faroe Islands.
A new sustainability risk framework for the Kvika group was defined in 2023 and approved by the BOD. Kvika Asset Management and TM have now
established sustainability risk strategies in line with the framework that will be reflected when integrating sustainability risk factors into processes.
Commercial Banking provides businesses, institutions, and investors with general banking services. Customer’s daily banking transactions are handled
mostly via Kvika’s online banking system. Kvika’s specialized brands provide diverse financial services to customers. Aur provides individuals with access to
a variety of banking services and Auður offers the same group with a selection of savings accounts. Lykill makes financing in the form of loan and lease
agreements for cars, machinery, and equipment available for individuals and companies. Kvika also operates the brand Framtíðin exclusively online and
provides mortgages to individuals in the form of secondary mortgages. Lastly, Kvika provides payment services to customers through its brands Netgíró and
Straumur.
The Sustainability Strategy adopts six of the United Nations Sustainable Development Goals (SDGs) to focus on in Kvika’s operations: SDG 3 on good health
and safety; SDG 4 on quality education; SDG 5 on gender equality; SDG 9 on industry, innovations, and infrastructure; SDG 13 on climate action and SDG 17
on partnership for the goals.
Business strategy and values
Kvika banki hf. (hereinafter referred to as “Kvika” or the “Bank”) is categorized as a financial conglomerate by the Financial Supervision of the Central Bank
of Iceland (hereinafter referred to as “FME”). Kvika’s purpose is to increase competition and simplify customers’ finances by utilizing infrastructure and
financial strength. Kvika’s vision is to transform financial services in Iceland with mutual benefits in mind. On that journey, Kvika is guided by three values
that contribute to the development of robust business relationships, long-term results, and active innovation. Kvika’s values are long-term thinking,
simplicity, and courage. In accordance with those values the Bank places emphasis on thinking of the future and contributing to a sustainable community
through active participation. Emphasis is placed on putting ourselves in the customer’s shoes, rethinking things and selecting projects that provide the
most long-term value for customers and the Bank.
Kvika offers its customers diversified financial and insurance services through five business segments: Commercial Banking, Corporate Banking & Capital
Markets, Insurance, Asset Management and UK operations. The business segments Insurance, Asset Management and the UK operations are operated in
the subsidiaries TM tryggingar hf., Kvika eignastýring hf. and Kvika Securities Ltd.
Sustainability and social responsibility
Kvika’s purpose, as previously stated, is to foster competition in financial services and simplify customers’ finances. The Bank emphasizes long-term
thinking and promoting a sustainable society through active participation. In 2022, a specific sustainability policy was established, and relevant supporting
policies formulated or updated, such as education and professional development policy, gender equality, health, and human resources policy.
Kvika takes the independence of its licenced subsidiaries, both with regards to management and day-to-day operations, seriously. However, Kvika, as a
parent company, is responsible for internal governance on a consolidated basis. In that context Kvika has laid down ground rules for its subsidiaries, both in
terms of administrative structure and internal governance, through ownership policies for its significant subsidiaries and requires regular and ad hoc
information from the subsidiaries to the parent company. Kvika requires harmonized and professional work ethics within the group, harmonized corporate
culture, coordinated human resources working under the same conditions and that Kvika’s values are maintained within the group to the extent allowed by
law. Further reference is made to annual reports of the Bank’s subsidiaries, available at www.rsk.is.
Asset Management emphasises on offering clients a broad range of services for investing in Iceland as well as in foreign markets. Its aim is to provide the
best asset and fund management services, guided by clients’ long‐term interests. Asset and fund management operations are mostly handled by Kvika’s
subsidiary, Kvika eignastýring hf.
Return on equity is determined by decisions made in accordance with the Bank’s risk appetite, which reflects its profitability targets. Consequently,
decisions regarding the optimal composition of the balance sheet to generate income are restricted by risk appetite and funding at any given time. Kvika’s
target is a return on tangible equity of at least 20% and keeping the capital adequacy ratio (CAR) 2-4% above legal and regulatory requirements set by FME.
Kvika’s objective is to deliver to shareholders an annual compensation equivalent to a minimum of 25% of profit, whether in the form of dividend
payments or share repurchases, under a formal buy-back programme, as authorised by applicable laws and decisions made at shareholders’ meetings.
When deciding on the amount of dividends or, as the case may be, the funds allocated for share buy-backs, care is taken to maintain Kvika’s strong
financial position, bearing in mind risks in the internal and external environment and growth prospects, to ensure that the Bank maintains a solid capital
ratio and liquidity for the future. Dividend payments are always subject to assessments of the opportunities offered by reinvesting profits in Kvika’s
operations and growth.
Consolidated Financial Statements 31 December 2023 79
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Statement on the Corporate Governance of Kvika banki hf. 2023
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In this context, it should be noted however that special rules apply to financial undertakings regarding assessment of the composition of their boards. Each
year, the BOD carries out a self-assessment with regard to its composition, assisted by external consultants.
The main elements of internal control, risk management and accounting
The BOD is responsible for ensuring that an active system of internal control is in place within the Bank, which is based on three lines of defence. The first
line of defence consists of the management and the employees of business and supporting units in charge of the Bank’s daily management and
organization. The main responsibility of the first line of defence is to ensure the functionality and implementation of internal control measures in daily
operations. The second line of defence is comprised of the internal control units of the Bank, principally the Compliance Officer and Risk Management. The
Compliance Officer is responsible for the training of employees and the BOD, monitors and regularly assesses compliance with relevant legislation,
monitors compliance risk, as well as consulting on implementation of laws and regulations in Kvika’s operations. Risk Management, among other things,
measures and assesses risk according to the Bank’s criteria and carries out regular reporting to supervisory entities. Other units may also be assigned a
supervisory role in the second line of defence, in line Kvika’s policy on internal control. The third line of defence is the internal auditor, operating
independently from other units within Kvika’s organization and directly under the control of the BOD, according to a formal statement of duties and job
description of the internal audit function. The internal audit function assesses the effectiveness of risk management, control methods and internal
governance in an independent and objective manner and in accordance with internal auditing standards. Among other things, the function prepares
independent audits, verifications, and advice to the BOD and the Audit Committee.
The implementation and functioning of internal control is the responsibility of the management of the Bank. Internal control is based on risk assessments
and control measures intended to reduce risk factors in the operations of the Bank. Internal control includes documented and formal procedures which
Kvika’s employees follow in their daily work, and which are examined by the control units.
Kvika is a member of the United Nations Principles for Responsible Investment (UN PRI) and submitted its first mandatory report on its responsible
investments to the organisation in 2023. Kvika is one of the founding members of IcelandSIF, an organisation for responsible investments, is a member of
Festa Centre for Sustainability and supports Grænvangur, which is a co-operation forum between industry and government on climate issues and green
solutions. Kvika is a member of the Partnership for Carbon Accounting Financials (PCAF), an industry-led initiative to enable financial institutions to
consistently measure and disclose GHG emissions financed by their loans and investments.
Kvika is obliged to observe recognised corporate governance guidelines, pursuant to Par. 7 of Article 54 of Act No. 161/2002, on Financial Undertakings.
The Bank complies with chapter VII of Act No. 161/2002, on Financial Undertakings, and in most respects with the Guidelines on Corporate Governance
issued jointly in February 2021 by the Chamber of Commerce, NASDAQ Iceland, and SA – Business Iceland. The Guidelines are available on the website of
the Chamber of Commerce www.vi.is.
Regulatory framework
Kvika is a financial undertaking subject to provisions of Act No. 161/2002, on Financial Undertakings, Act No 61/2017, on Additional Supervision of Financial
Conglomerates, Act No. 115/2021, on The Market for Financial Instruments, Act No. 60/2021, on Measures against Market Abuse, Act No. 108/2007, on
takeovers, Act No. 45/2020, on Alternative Investment Funds, Act No. 116/2021 on undertakings for collective investment in transferable securities, Act No.
14/2020, on Prospectus for Public Offering or Admission to Trading on a Regulated Market, Act No. 33/2013, on Consumer Lending, Act No. 118/2016, on
mortgage lending to consumers, Act No. 100/2016 on Insurance Activity, Act No. 2/1995 on Limited Liability Companies, the Competition Act, No. 44/2005,
Act No. 114/2021, on Payment Services, Act No. 3/2006, on Annual Financial Statements, Act No. 140/2018, on Measures against Money Laundering and
Terrorist Financing and others. Moreover, Kvika is obliged to guarantee the safety of the personal data it processes in its activities, in accordance with Act
No. 90/2018, on the Protection of Privacy as regards the Processing of Personal Data. Kvika has an operating licence from FME, which supervises the
activities of the Bank. Kvika’s activities are therefore governed by the rules and instructions of the FME and Central Bank of Iceland. Kvika is also subjective
to further extensive legislation and secondary acts that apply to the financial market, mostly originated from Europe, and incorporated in Icelandic law
through various means. More details about FME and an overview of the principal legislation and rules that apply to the Bank at any given time can be
found on the website of FME www.fme.is.
Kvika’s only deviation from the guidelines has been that it has not appointed a nomination committee nor decided how one should be appointed. There is
currently no specific nomination procedure in place for board members. Shareholders elect board members from those candidates which have announced
their candidacy in accordance with Act No. 2/ on Limited Liability Companies. If the number of candidates does not outnumber the number of seats on the
BOD, the candidates are automatically elected to the BOD. This arrangement was in accordance with the outcome of the Bank’s annual general meeting in
2019 where the shareholders agreed to entrust the BOD at the time with analysing the advantages and disadvantages of appointing a nomination
committee for the Bank and, as the case might be, submit proposals thereto. Following the analysis, the conclusion at the time was to not propose to
shareholders to appoint a nomination committee. Since then, a few conversations on the matter have taken place with individual shareholders, and at the
scheduled annual general meeting on 21 March 2024 the BOD intends to propose to the shareholders the appointment and role of a nomination
committee and that Kvika’s articles of association will be updated accordingly.
Furthermore, Kvika’s activities comply with the recognised standards and rules of the European Banking Authority (EBA), including guidelines on internal
governance (EBA/GL/2021/05), cf. Article 15 of regulation of the European Parliament and of the Council No. 1093/2010, which was incorporated into
Icelandic law with act no. 24/2017 a European Financial Supervisory System (hereinafter “EBA Guidelines”). The EBA Guidelines can be found on FME’s
website www.fme.is and on EBA’s website https://www.eba.europa.eu/homepage.
Kvika awards a variety of grants that have a positive social impact, and the selection of projects reflects the six UN SDGs that have been adopted. In recent
years, support has been provided to UNICEF in Iceland; women and innovation with FrumkvöðlaAuður, and industrial studies and teacher training with
allocations from Kvika’s Incentive Fund. Educational support is considered to be one of the best long‐term investments for both societies and individuals.
A more detailed discussion of the scope, position, and impact of the group regarding environmental, social and governance matters (also known as “ESG
factors”) can be found in Kvika’s sustainability report, which is published together with Kvika's annual financial statement. The report is based on ESG
indicators according to Nasdaq Nordic ESG Guidelines (ESG Reporting Guide 2.0), and to a limited extent on GRI indicators according to Global Reporting
Initiative (GRI) standards.
Compliance with corporate governance guidelines
Consolidated Financial Statements 31 December 2023 80
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The BOD hires an Internal Auditor, signs his/her formal statement of duties, and annually approves the internal audit plan. The CEO appoints the
Compliance Officer, and the BOD confirms the appointment. The CEO appoints the Managing Director of the Risk Management function. The reports and
findings of the internal control functions are presented directly to the BOD.
Kvika’s BOD has three sub‐committees, the Audit Committee, Risk Committee and Remuneration Committee.
The members of the Audit Committee are Ingunn Svala Leifsdóttir, as chairperson, Helga Kristín Auðunsdóttir and Margrét G. Flóvenz. The committee is
intended to play an advisory and supervisory role for Kvika’s BOD by, among other things, ensuring the quality of financial statements and other financial
information from the Bank and the independence of its auditors. The committee supervises accounting procedures and the effectiveness of internal
controls as well as internal and external auditing. The committee met nine times in 2023.
The members of the Risk Committee are Guðmundur Þórðarson, who is chairperson, Ingunn Svala Leifsdóttir and Sigurður Hannesson. The committee has
an advisory and supervisory role for the Bank’s BOD, among other things, in determining its risk policy and risk appetite. The committee also monitors the
organisation and effectiveness of risk management, management of credit risk, market risk, liquidity risk, operating risk, reputational risk, and other risks,
as the case may be. The committee met 10 times in 2023.
The BOD determines the risk policy and risk appetite of the Group with internal rules on risk management of the financial conglomerate of Kvika, which
define risk factors in Kvika’s operations, including their nature and acceptable volume.
The BOD has established rules on risk management of the financial conglomerate of Kvika which are rules on risk and apply to the Group in whole. The
purpose of the rules is to harmonize risk management within the Group to ensure it is systematic and effective and to enhance transparency within the
Group’s risk taking at all levels of management, from the BOD of Kvika to boards of subsidiaries, the operating units and individuals who directly participate
in daily management and decision-making regarding risk. The rules on risk of the financial conglomerate of Kvika stipulate that the Bank and its subsidiaries
shall establish a risk policy. The risk policy of the Bank and each subsidiary shall implement what is stated in the rules on risk and further define risk-taking
within Kvika and each subsidiary. The BOD has established a risk policy for the Bank.
The members of Kvika’s Executive Committee, in addition to the CEO are the following employees: Sigurður Viðarsson, Deputy CEO, Eiríkur Magnús
Jensson, CFO, Anna Rut Ágústsdóttir, Managing Director of Operations and Development, Elísabet Guðrún Björnsdóttir, Managing Director of Risk
Management, Bjarni Eyvinds Þrastarson, Managing Director of Corporate Banking and Capital Markets and Lilja Jensen, General Counsel. The hiring process
for the position of Managing Director of Corporate Banking is ongoing. Additionally in the Group’s Executive Committee are Hannes Frímann Hrólfsson,
CEO of Kvika Asset Management hf., and Birkir Jóhannsson, CEO of TM Tryggingar hf. More details about the Executive Committee are accessible on Kvika’s
website www.kvika.is.
The CEO reports to the BOD and verifies the effectiveness of internal controls and risk management in the Consolidated Financial Statements. Internal
controls and risk management applied in the preparation of the Consolidated Financial Statements are organised with a view to preventing any significant
deficiencies in the accounting process.
Kvika’s Finance division prepares annual financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU,
and additional requirements, as applicable, in the Act on Annual Accounts no. 3/2006, the Act on Financial Undertakings no. 161/2002 and rules on
accounting for credit institutions no. 834/2003. The annual financial statements are audited by Kvika’s external auditors, Deloitte.
The members of the Remuneration Committee are Guðjón Reynisson, who is chairperson, Sigurður Hannesson, and Helga Kristín Auðunsdóttir. The
committee has an advisory and supervisory role for the Bank’s BOD regarding salaries and other remuneration, ensuring that this supports the Bank’s
objectives and interests. The committee met seven times in 2023.
All the BOD’s sub-committees have established rules of procedure prescribing the implementation of their tasks in detail and endorsed by the BOD. The
BOD appoints sub-committee members by majority vote from its own ranks and nominates the chairpersons. Because of the nature of the committees,
neither the CEO nor other employees can serve on them. The rules of procedure of the committees and the BOD are accessible on Kvika’s website
www.kvika.is.
Kvika’s BOD and control units regularly verify the effectiveness of internal controls and risk management.
Composition and activities of the BOD, Executive Committee, and sub-committees
Each year Kvika’s annual general meeting elects the BOD consisting of five board members and two alternates.
Board members come from varied backgrounds, and all possess extensive experience and expertise. In accordance with the Act on Limited Liability
Companies No. 2/1995, the Bank’s Articles of Association and Kvika’s policy for assessing the eligibility of its board members and CEO care is taken to
ensure at least 40% representation of each gender on the BOD and mong the alternates. The BODis currently comprised of three men and two women.
Regular board meetings are generally held once a month and, as the case may be, additional meetings in between to discuss specific matters. In 2023, 36
board meetings were held and all board members attended all board meetings, except for three meetings where one board member was absent in each
instance. The Chairman of the attended all meetings of the BOD.
The BOD is the supreme authority in the affairs of the Bank between shareholders’ meetings. Its main duties are to supervise all of Kvika’s operations and
ensure that they are in good order at all times. The BOD is responsible for Kvika’s policy making and shall ensure that the accounting and handling of the
Bank’s assets is properly supervised. The BOD prepares plans for Kvika in line with the Bank’s objectives and in accordance with its Articles of Association
and determines the strategies to be followed to achieve the objectives set. The BOD appoints the CEO and supervises his work, e.g., by receiving regular
reports from the CEO at board meetings. The BOD annually evaluates the CEO’s work in a documented manner. The BOD also represents the Bank before
courts and government authorities and allocates authority to sign and to commit the Bank.
Consolidated Financial Statements 31 December 2023 81
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Statement on the Corporate Governance of Kvika banki hf. 2023
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Kvika has adopted a policy for assessing the eligibility of its board members and CEO as provided for in EBA guidelines and pursuant to Art. 52 of Act No.
161/2002 on Financial Undertakings, provisions of Rules No. 150/2017 on assessment of eligibility of managing directors and directors of financial
undertakings and the guidelines. It addresses, inter alia, Kvika’s policy on the diversity of its BOD, Executive Committee, and senior management with
regard to age, gender and educational and professional background. The composition of the BOD is also dealt with in Kvika’s Articles of Association, which
state, among other things, that its BOD shall be so comprised that its members jointly possess adequate expertise, skills, and experience to understand the
activities of the Bank, including key risk factors. Kvika has also adopted a Human Resources Policy and Equality Policy. According to the Bank’s Equality
Policy, non-discrimination and diversity shall characterise all its operations. All employees should have the opportunity to make good use of their abilities
at work and be valued on their own merit, have equal opportunities, and enjoy the same rights in their work and for career advancement, regardless of
gender, age and origin. The status and opportunities of individuals shall be equal regardless of gender, race, nationality, religion, age, or other irrelevant
factors when it comes to employment in management positions and participation in working groups, boards and committees.
Guðjón Reynisson was appointed to Kvika’s BOD in March 2018. He was born in 1963 and works as an independent investor and board member. Between
2008 and 2017 he served as CEO of Hamleys of London. From 2003 to 2008, he served as managing director of the 10-11 stores. From 1998 to 2003 he was
the managing director of the sales division of Tal, an Icelandic phone company. He graduated with an MBA degree from the University of Iceland in 2002.
He graduated with an Operations and Business degree from the Continuing Education Study of the University of Iceland in 1999 and graduated with a
degree as a licensed physical education teacher from the University of Iceland in 1986. Guðjón has been on the board of directors of Festi hf. since 2014, of
Securitas hf. since 2018 and of Dropp ehf. since 2020. Guðjón controls 10,410,789 shares in Kvika through his private limited company, Hakk ehf., but does
not have interest links with major clients, competitors, or big shareholders in the sense of the corporate governance guidelines.
Helga Kristín Auðunsdóttir was appointed to Kvika’s BOD in April 2021. She was born in 1980. Helga Kristín is a doctor in Law from Fordham University in
New York. In her doctoral studies at Fordham University she researched corporate governance and hedge fund investments. Helga Kristín graduated with
BS in Business Law from Bifröst University in 2004 and with a master’s degree in law from the same university in 2006. She graduated with an LL.M degree
in law from the University of Miami, with a focus on international business law and contracts in 2010. Helga Kristín is an assistant professor at the
Department of Law at Reykjavík University. Before that, she worked as a director and assistant professor at Bifröst University, as a lawyer for Stoðir hf., as a
lawyer for FGM/Auðkenni, now part of the Central Bank of Iceland and as a lecturer at the faculty of law at University of Miami. Helga Kristín has been a
member of the board of directors of TM tryggingar hf. from 2023 and in the years 2020-2021. She was also an appointed alternate on the board of directors
of Tryggingamiðstöðin hf. in 2012-2015. Helga Kristín does not own shares in the Bank and does not have interest links with major clients, competitors, or
big shareholders in in the sense of the corporate governance guidelines.
Ingunn Svala Leifsdóttir was appointed to Kvika’s BOD in September 2021. Ingunn was born in 1976. She graduated with a BS degree in Business from the
University of Iceland in 1999, with a focus on accounting and finance, and with a Cand. Oecon business degree from the same University in 2001, with a
focus on accounting and management. Ingunn Svala completed the Advanced Management program (AMP) from the IESE Business School in New York in
2018. Ingunn Svala currently works as a chief executive officer at Olis hf. Prior to that she worked as a COO for Dohop and as an executive director of
operations at Reykjavík University. Ingunn Svala also has extensive experience from the financial sector. She worked for the Kaupthing’s Resolution
Committee as Chief Financial Officer from 2009 to 2011 as well as working as a Global Business Controller in Investment Banking at Kaupþing bank in 2007
to 2009. Ingunn Svala also worked within the Actavis Group PTC consolidation in 2006 to 2007 as a CFO for four subsidiaries, namely Actavis hf., Medís ehf.,
Actavis Group hf. and Actavis Group PTC ehf. Ingunn Svala has extensive experience of serving as a board member and currently sits on the boards of Ósar
– lifeline of health hf. and of its subsidiary, Parlogis ehf. Ingunn Svala does not own shares in the Bank and does not have interest links with major clients,
competitors, or big shareholders in in the sense of the corporate governance guidelines.
Sigurgeir Guðlaugsson and Helga Jóhanna Oddsdóttir are alternate members of the BOD. In the opinion of the BOD, they are also independent members of
the BOD within the meaning of the corporate governance guidelines.
The BOD considers all board members to be independent as defined by the corporate governance guidelines.
The CEO can provide more detailed information on the rules of procedure and the operations of the BOD and sub-committees.
Information on Board members
Sigurður Hannesson is the chairman of the BOD. He was appointed to Kvika’s BOD in March 2020. He was born in 1980 and is currently the Director
General of the Federation of Icelandic Industries. From 2013-2017, Sigurdur worked as a managing director of Kvika’s (previously MP Bank’s) asset
management division. In 2015, Sigurdur was the Vice-Chairman of the Government Task Force on lifting of capital controls and in 2013 the Chairman of the
Expert Group on household debt relief. From 2010-2013, Sigurdur worked as CEO of Jupiter fund management company, now Kvika Asset Management,
and in Capital Markets at Straumur Investment Bank from 2007-2010. Sigurdur holds a DPhil degree in mathematics from the University of Oxford, a BS
degree in mathematics from the University of Iceland and is a certified securities broker. Sigurður also sits on the boards of Iceland Symphony Orchestra,
Grænvangur (Green by Iceland), Reykjavík University, Auðna-Tæknitorg ehf., Akkur SI, SI 1 ehf., Sundaboginn slhf., Seapool ehf., BBL 39 ehf. and the
Icelandic Cancer Society. Sigurður owns 8,550,107 shares in the Bank through shareholding in the private limited company BBL 39 ehf., but does not have
interest links with major clients, competitors, or big shareholders in the sense of the corporate governance guidelines.
Guðmundur Þórðarson is the deputy chairperson of the BOD. He was appointed to Kvika’s BOD in March 2017. Guðmundur was born in 1972. He
graduated from the University of Iceland with a Cand. oecon business degree in 1997. He has also completed a securities brokerage and asset management
exam in the UK. Guðmundur’s main focus is on managing his own investments. From 1997 to 2000 he worked in Asset Management at Landsbréf hf. From
2000 to 2003, he worked as a specialist in the development and corporate advisory division of Íslandsbanki hf. From 2003 to 2007 he worked as Managing
Director of Corporate Finance at Straumur fjárfestingarbanki hf. Guðmundur also sits on the boards of Hedda eignarhaldsfélag ehf., Skel Investments ehf.,
Flóka Capital ehf and Attis ehf., as well as serving as an alternate in the board of Bílaleiga BTF ehf. Guðmundur holds 66,750,000 shares in the Bank through
the private limited company Attis ehf. Guðmundur does not have interest links with major clients, competitors, or big shareholders in the sense of the
corporate governance guidelines.
Consolidated Financial Statements 31 December 2023 82
Kvika banki hf.
Statement on the Corporate Governance of Kvika banki hf. 2023
0
Communications between shareholders and the BOD
Main factors in the BOD’s performance evaluation
Information is provided to shareholders on a non-discriminatory basis and is mainly limited to shareholders’ meetings or the communication of
harmonised information to all shareholders simultaneously. News of the Bank’s operations are posted on Kvika’s website and press releases are issued in
accordance with disclosure obligations of issuers of shares when newsworthy events in the Bank’s operations take place. A detailed presentation of the
Bank’s operations over the past year is also provided at its AGM and information on the Bank’s operations is published in Kvika’s annual report and
financial statements.
This statement on the corporate governance practices of Kvika banki hf. was reviewed and approved by the BOD on 15 February 2024.
The BOD annually evaluates its performance. It evaluates the performance of tasks and work of the BOD for the previous year. The focus of the assessment
is on strategic planning, disclosure and future vision, the size and composition of the BOD, performance of board members, the work of sub-committees
and performance of the CEO, the internal auditor, and the secretary of the BOD. The development of the Bank is reviewed to assess whether it is line with
objectives. Following the annual performance assessment, the BOD defines tasks in areas where improvements are needed. The last performance
assessment was conducted in January 2024. The BOD also regularly conducts special self-assessments on its composition in accordance with the guidelines
of the European Banking Authority (EBA), and last did so in January 2024.
Information on the CEO of Kvika and his main duties
Ármann Þorvaldsson became CEO of Kvika in August 2023. Ármann was born in 1968 and previously worked as CEO and Deputy CEO of the bank in the
years 2017-2019. Ármann has worked in the financial market for over twenty years. From 1997 until 2005 he was Head of Corporate Finance at Kaupthing
and in 2005 until 2008 he was CEO of Kaupthing Singer & Friedlander in London. Later he worked at Ortus Secured Finance in London until 2015 when he
joined Virðing. Ármann headed up Virðing’s Corporate Finance division before joining Kvika. Ármann has an MBA degree from Boston University and a BA
degree in history from the University of Iceland. Ármann controls 759.892 shares in Kvika and has also entered into call option agreements with Kvika in
accordance with Kvika’s remuneration policy and incentive scheme as well as the employees’ general stock option plan. Further, Ármann and his family
own the company BMA ehf. Which controls 4,082,158 shares in the Bank. He does not have interest links with major clients, competitors or major
shareholders as defined by the corporate governance guidelines.
The CEO oversees the daily operations of Kvika and in so doing follows the policies and instructions which have been laid down by the Bank’s BOD. Daily
operations do not include unusual or major arrangements. The CEO shall ensure that Kvika’s accounts are kept in accordance with laws and customs and
that the Bank’s assets are handled in a secure manner. The CEO appoints and dismisses employees of the Bank. Furthermore, he is required to follow all of
the BOD’s instructions. The CEO shall provide Kvika’s external auditors with all requested information.
Information on violations of laws and regulations, determined by the relevant supervisory body or adjudicating entity
Kvika has not been subject to withdrawal, revocation or dismissal of registration, authorization, membership, or permissions to perform certain trades,
operations or work. Kvika was not fined by any supervisory body in the year 2023. As per usual the FME performed onsite inspections in 2023. Results are
still pending in individual cases. No court cases or arbitration proceedings which may have significant effects on the Bank, or the Group, were ongoing or
pending at the end of the year.
Consolidated Financial Statements 31 December 2023 83
84
Appendix2:
EUTaxonomyRegulation
Unaudited
Kvikabankihf. AmountsareinISKthousands
EUTaxonomyRegulation
Taxonomy‐eligibleactivities
Taxonomy‐alignedactivities(alsoknownasenvironmentallysustainableactivities)
TheGreenAssetRatio
1
htt
p
s://eur‐lex.euro
p
a.eu/le
g
al‐content/EN/TXT/?uri=CELEX%3A52022XC1006%2801%29
2
htt
p
s://eur‐lex.euro
p
a.eu/le
g
al‐content/EN/TXT/?uri=CELEX:52023XC00305
3
https://ec.europa.eu/finance/docs/law/231221‐draft‐commission‐notice‐eu‐taxonomy‐reporting‐financials_en.pdf
It should be noted that due to the recent implementation of the disclosure requirements, lack of implementation
of various European acts into Icelandic law and lack of disclosure from legal entities subject to the requirements of
theregulationtheinformationislimitedinthefirstyearofreporting.
ThecalculationofthekeyfiguresintheannexisbasedonthedatausedfortheGroup’sfinancialreporting.
The proportion of assets that can be classified as taxonomy‐eligible refers to assets and activities that are
outlined in the delegated acts of the regulation but does not indicate which activities are truly
environmentally sustainable. This first step of determining “eligibility” involves determining if there is a
technicalscreeningcriterioninthedelegatedactsthatcanbeappliedtotheactivity.
Credit institutions and other financial corporations subject to reporting requirements in Iceland are
required to report on how exposures to eligible activities impact the following climate objectives outlined
inEUregulation
No.2021/2139(hereinafter“ClimateDelegatedAct”):
‐Climatechangemitigation.
‐Climatechangeadaptation.
The regulation covers six environmental objectives in total but the remaining four objectives came into
force in the EU through EU delegated regulation No. 2023/2486 and delegated regulation No.
2023/2485.ThesehaveyettobeimplementedinIceland.Theremainingenvironmentalobjectivesare:
‐Thesustainableuseandprotectionofwaterandmarineresources.
‐Thetransitiontoacirculareconomy.
‐Pollutionpreventionandcontrol.
‐Protectionandrestorationofbiodiversity
andecosystems.
The Group has derived that the following assets can be considered as taxonomy‐eligible; loans and
advances to financial and non‐financial corporates that are subject to non‐financial disclosures according to
Article 66 d of the Annual Accounts Act and financing to households, in particular motor vehicle loans and
residentialrealestate.
For an economic activity to be considered environmentally sustainable or taxonomy‐aligned it must fulfil
thefollowingfourconditions:
‐Makeasubstantialcontributiontoatleastoneenvironmentalobjectiveoutlinedintheregulation.
‐Donosignificantharmtoanyotherenvironmentalobjective.
‐Complywithminimumsocialsafeguards.
‐Complywiththetechnicalscreeningcriteriaoutlinedin
thedelegatedregulations.
For this year’s reporting the Group was only able to perform the alignment test on loans to households, in
particular motor vehicle loans (activity 6.5: Purchase, financing, renting, leasing) and residential real estate
(mortgages, activity 7.7: Acquisition and ownership of buildings) as the assessment for those is not
dependentonpubliclyreporteddatafromthecounterparty.
The EU Taxonomy (EU regulation No. 2020/852) (hereinafter "the regulation") was implemented into Icelandic law
when Act No. 25/2023 on sustainable financial disclosure and taxonomy for sustainable investments entered into
force in Iceland on 1 June 2023. The regulation provides the basis for a harmonized European classification system
with definitions and criteria for what constitutes as environmentally sustainable economic activities. According to
Article 8 of the regulation, companies that fall under the regulation have an obligation to disclose how and to
what extent its activities are associated with environmentally sustainable economic activities, the Group is subject
tothoseobligations.
According to Icelandic Act on Annual Accounts No. 3/2006 (hereinafter “the Annual Accounts Act”) Kvika is
required, in the consolidated financial statements, to disclose non‐financial information on consolidated basis. This
annex to the consolidated financial statement therefore includes information on Kvika Asset Management which
can also be found accompanying Kvika Asset Management’s annual financial statement. As was announced on 3
October 2023 Kvika has initiated the process for sale or listing of TM, which is expected to be concluded within the
year 2024. Due to this TM was classified as a disposal group held for sale on 31 December 2023. This classification
and the fact that the subsidiary is large in size and its operations are very different from other operations of the
Group are the reasons why TM’s taxonomy disclosures will only be published alongside TM's annual financial
statementandnotintheconsolidatedfinancialstatements.
In 2023, the Group has focused on the implementation of the regulation, and delegated acts that have been
implemented in Iceland, into the Group’s operations as applicable and now publishes, for the first time,
information in accordance with Article 8 of the regulation alongside the Consolidated Financial Statements for
2023. The information is prepared in accordance with relevant annexes of the EU delegated regulation no.
2021/2178 (hereinafter “Disclosures Delegated Act”), taking into consideration the information provided in EU
Commission Notices on interpretation of certain legal provisions of the Disclosures Delegated Act under Article 8
of EU Taxonomy Regulation on the reporting of eligible economic activities and assets No. (2022/C 385/01)
1
and
(C/2023/305)
2
anddraftCommissionNoticeof21December2023
3
.
Theregulationrequirescreditinstitutionstoreportontheirgreenassetratio(GAR)asakeyperformanceindicator
(KPI). The GAR shall show the proportion of the of credit institution’s assets financing and invested in taxonomy‐
aligned economic activities as a proportion of total covered assets, excluding exposures to central governments,
centralbanks,andsupranationalissuers.
ConsolidatedFinancialStatements31December2023 85
Kvikabankihf. AmountsareinISKthousands
Companiessubjecttotaxonomydisclosures Limitationstothereporting
Households
Mortgages
Motor vehicle loans are recognized as a taxonomy‐eligible activity in accordance with the Climate Delegated Act. A
substantial portion of the Group‘s loans to households pertain to motor vehicle financing. However, only motor
vehicleloansissuedaftertheregulationtookeffectinIcelandi.e.1June2023,aredeemedeligible.
For a motor vehicle loan to classify as an environmentally sustainable activity it cannot cause harm on other
environmental objectives. To assess this information needs to be gathered on various factors such as the CO2
emissions of the vehicle, the end‐of life treatment i.e. reuse, recycling and recovery of the vehicle alongside
detailed information about the tyres. The Group has significant information on motor vehicle loans in terms of
emissions but has faced difficulties assessing information on e.g. the specific requirements set regarding car tyres
ofitscustomers.Therefore,theseloanscannotbeconsideredastaxonomy‐aligned.
Motorvehicleloans
The Group maintains a relatively modest allocation of mortgage loans. While these loans fall within the scope of
taxonomy‐eligible activities, as outlined in the Delegated Climate Act, it is important to note that they are not
presently considered as taxonomy‐aligned (environmentally sustainable). For a mortgage to be considered as
taxonomy‐aligned it is important to have access to information on the energy efficiency of the building subject to
the loan. This use of energy efficiency of buildings is common in other European countries but has not been
adopted in Iceland. Energy efficiency is based on the energy performance certificates set out in Directive (EU)
2010/31 on the energy performance of buildings but Iceland is exempt from the application of that Directive. As a
result,noformalenergyperformancecertificateshavebeenissuedforIcelandicbuildings.
Due to this lack of data, mortgages to households do not fullfil the criterion to be considered environmentally
sustainable.
There are several limitations to the reporting in the first reporting year in Iceland. The regulation was
implemented in phases in Europe starting in 2022 to ensure data availability. However, as it was
implemented differently in Iceland, with all companies in scope disclosing at the same time, there will be
limitations in the results presented. Due to this it has proven challenging to disclose information on
eligibility and alignment since the Group is required to use counterparties’ data and KPIs to calculate its
ownKPIsi.e.GAR.
The regulation is still developing and the Group anticipates there will be a learning curve in data collection,
analysis and disclosures. As companies gain experience in reporting it will become clearer how impactful
the KPI‘s can be. The technical screening criteria will also prove useful when considering green financing
moving forward. The Group will follow any developments regarding the regulation, and consider it going
forwardininitssustainabilityjourney.
Companies which are required to publish non‐financial information in line with Article 66 d of the Annual Accounts
Act, are in scope of disclosing according to the regulation. To identify the companies in scope (also r eferred to as
companies subject to NFRD ) Kvika has employed external data sourced from a third party, adhering to the criteria
outlined in Article 66 d of the Annual Accounts Act. This information has been complemented, where needed, with
data directly collected from the annual reports of corporate customers and counterparties. The Group‘s exposures
to said companies at the end of 2023 was 0.027% of total covered assets and is therefore trivial. Small and
medium sized companies do to not meet the disclosure requirements which leaves a substantial portion of the
Group‘sassetsoutofscope.
The companies in scope of the disclosure requirements are scheduled to release their initial reports in accordance
with the regulation in 2024 for the financial year 2023. The Group is required to use data provided by its
counterparties to calculate green asset ratio but due to the lack of available information it will provide a limited
setofresultsforthefirstreportingyear.
ConsolidatedFinancialStatements31December2023 86
Kvikabankihf. AmountsareinISKthousands
0. AssetsforthecalculationofGAR
Totalenvironmentallysustainableassets KPI**** KPI***** %coverage(overtotalassets)***
MainKPI Greenassetratio(GAR)stock
Totalenvironmentallysustainableactivities KPI KPI %coverage(overtotalassets)
AdditionalKPIs GAR(flow)
Tradingbook*
Financialguarantees
Assetsundermanagemen
t
Feesandcommissionsincome**
*ForcreditinstitutionsthatdonotmeettheconditionsofArticle94(1)oftheCRRortheconditionssetoutinArticle325a(1)oftheCRR
**FeesandcommissionsincomefromservicesotherthanlendingandAuM
***%ofassetscoveredbytheKPIoverbanks´
totalassets
****basedontheTurnoverKPIofthecounterparty
*****basedontheCapExKPIofthecounterparty,exceptforlendingactivitieswhereforgenerallendingTurnoverKPIisused
Note1:Acrossthereportingtemplates:cellsshadedinblackshouldnotbereported.
Note2:FeesandCommissionsandTradingBook
KPIsshallonlyapplystarting2026.SMEs´inclusionintheseKPIwillonlyapplysubjecttoapositiveresultofanimpactassessment.
74.80%
ConsolidatedFinancialStatements31December2023 87
Kvikabankihf. AmountsareinISKthousands
1. AssetsforthecalculationofGAR
abcdefghijklmno p
Ofwhich
specialised
lending
Ofwhich
transitional
Ofwhich
enabling
Ofwhich
specialised
lending
Ofwhich
adaptation
Ofwhich
enabling
Ofwhich
specialised
lending
Ofwhich
transitional/
adaptation
Ofwhich
enabling
1
GAR‐Coveredassetsinbothnumeratorand
denominator
2
Loansandadvances,debtsecuritiesand
equityinstrumentsnotHfTeligibleforGAR
calculation
36,234,799 8,921,941 8,930,844
3 Financialcorporations
1,938,213
4 Creditinstitutions
1,819
5Loansandadvances
1,819
6Debtsecurities,includingUoP
0
7 Equityinstruments
0
8 Otherfinancialcorporations
1,936,393
9ofwhichinvestmentfirms
0
10 Loansandadvances
0
11 Debtsecurities,includingUoP
0
12 Equityinstruments
0
13 ofwhichmanagementcompanies
1,936,393
14 Loansandadvances
1,936,393
15 Debtsecurities,includingUoP
0
16 Equityinstruments
0
17 ofwhichinsuranceundertakings
0
18 Loansandadvances
0
19 Debtsecurities,includingUoP
0
20 Equityinstruments
0
21 Non‐financialcorporations
61,267 8,902 8,902
22
NFCssubjecttoNFRDdisclosure
obligations
61,267 8,902 8,902
23 Loansandadvances
61,267
8,902 8,902
24 Debtsecurities,includingUoP
0
25 Equityinstruments
0
26 Households(3)*
32,676,440 8,921,941 8,921,941
27
ofwhichloanscollateralisedby
residentialimmovableproperty
1,930,717 1,930,717 1,930,717
28 ofwhichbuildingrenovationloans 0
29 ofwhichmotorvehicleloans**
6,991,224 6,991,224 6,991,224
30 Localgovernmentsfinancing
1,558,880
31
Collateralobtainedbytakingpossession:
residentialand
commercialimmovable
p
ro
p
erties
0
32 Otherlocalgovernmentfinancing
1,558,880
33
Otherassetsexcludedfromthenumeratorfor
GARcalculation(coveredinthedenominator)
214,574,302
ISK
DisclosurereferencedateT
Totalgross
carryingamount
ClimateChangeMitigation(CCM) ClimateChangeAdaptation(CCA) TOTAL(CCM+CCA)
Ofwhichtowardstaxonomyrelevantsectors(Taxonomy‐eligible) Ofwhichtowardstaxonomyrelevantsectors(Taxonomy‐eligible) Ofwhichtowardstaxonomyrelevantsectors(Taxonomy‐eligible)
Ofwhichenvironmentallysustainable(Taxonomy‐
aligned)
Ofwhichenvironmentallysustainable(Taxonomy‐
aligned)
Ofwhichenvironmentallysustainable(Taxonomy‐
aligned)
ConsolidatedFinancialStatements31December2023 88
Kvikabankihf. AmountsareinISKthousands
1. AssetsforthecalculationofGAR(cont.)
abcdefghijklmno p
Ofwhich
specialised
lending
Ofwhich
transitional
Ofwhich
enabling
Ofwhich
specialised
lending
Ofwhich
adaptation
Ofwhich
enabling
Ofwhich
specialised
lending
Ofwhich
transitional/
adaptation
Ofwhich
enabling
34 Non‐financialcorporations
101,639,637
35
SMEsandNFCs(otherthanSMEs)not
subjecttoNFRDdisclosureobligations
72,202,993
36 Loansandadvances
72,202,993
37
ofwhichloanscollateralised
by
commercialimmovableproperty
0
38 ofwhichbuildingrenovationloans
0
39 Debtsecurities
0
40 Equityinstruments
0
41
Non‐EUcountrycounterpartiesnot
sub
j
ecttoNFRDdisclosureobli
g
ations
29,436,644
42 Loansandadvances
29,436,644
43 Debtsecurities
0
44 Equityinstruments
0
45 Derivatives
19,350,190
46 Ondemandinterbankloans
6,356,998
47 Cashandcash‐relatedassets
20,055
48
Otherassets(e.g.Goodwill,
commoditiesetc.
)
87,207,422
49 TotalGARassets
250,809,101
50 OtherassetsnotcoveredforGARcalculation
84,588,331
51 Sovereigns
63,426,450
52 Centralbanksexposure
17,304,400
53 Tradingbook
3,857,480
54 Totalassets
335,397,432
55 Financialguarantees
2,500
56 Assetsundermanagement***
105,753,957
57 Ofwhichdebtsecurities
66,417,080
58 Ofwhichequityinstruments
39,336,876
*Householdsincludeallretailloansissuedtoindividuals
**Motorvehicleloansforhouseholdsincludecarsinvehiclegroups(M1)and(N1)
**Formotorvehicl eloans,onlyexposuresgeneratedafter1June2023(thedateof
applicationofthedisclosure)areincluded
***AssetsheldwithinportfoliosmanagedbyKvikaAssetManagementthataresubjecttoNon‐FinancialReportingDirective(NFRD)disc losureobligations
1) GAR‐Coveredassetsinbothnumeratoranddenominator:Accountingcategoriesoffinancialassetsusedforthecalculationofthegreenassetratio.
33)
50) Otherassets
notcoveredforGARcalculation:Theexposurestocentralgovernments,centralbanksandsupranationalissuersshallbeexcludedfromthecalculationofthenumeratoranddenominatorofkeyperformanceindicatorsoffinancialundertakings.
OtherassetsexcludedfromthenumeratorforGARcalculation(coveredinthedenominator):Certainassetsareexcludedfrom
thenumeratore.g.financialassetsheldfortrading,on‐demandinterbankloans,derivatesandexposurestoundertakingsthatarenotobligedto
publishnon‐financialinformationpursuanttoArticle19aor29aofDirective2013/34/EU.
Off‐balancesheetexposures‐CorporatessubjecttoNFRDdisclosureobligations
ClimateChangeMitigation(CCM) ClimateChangeAdaptation(CCA) TOTAL
(CCM+CCA)
ISK
DisclosurereferencedateT
Totalgross
carryingamount
Ofwhichtowardstaxonomyrelevantsectors(Taxonomy‐eligible) Ofwhichtowardstaxonomyrelevantsectors(Taxonomy‐eligible) Ofwhichtowardstaxonomyrelevantsectors(Taxonomy‐eligible)
Ofwhichenvironmentallysustainable(Taxonomy‐
aligned)
Ofwhichenvironmentallysustainable(Taxonomy‐
aligned)
Ofwhichenvironmentallysustainable(Taxonomy‐
aligned)
ConsolidatedFinancialStatements31December2023 89
Kvikabankihf. AmountsareinISKthousands
2. GARsectorinformation
abce
f
hiklnoqr
ISK
Ofwhich
environmentally
sustainable(CCM)
ISK
Ofwhich
environmentally
sustainable(CCM)
ISK
Ofwhich
environmentally
sustainable(CCA)
ISK
Ofwhich
environmentally
sustainable(CCA)
ISK
Ofwhich
environmentall
ysustainable
(CCM+CCA)
ISK
Ofwhich
environmentally
sustainable
(CCM+CCA)
1
C2442‐Aluminiumproduction 8,902
ClimateChangeAdaptation(CCA)
SMEsandotherNFCnot
subjecttoNFRD
Non
‐Financialcorporates
(SubjecttoNFRD)
SMEsandotherNFCnot
subjecttoNFRD
4.Thistableonlycoversexposurestonon‐financialcorporatessubjecttodisclosureobligationsaccordingtoarticle8oftheEUTaxonomy.ForthefirstreportingyeartheGroupcannotdisclosewhichcorporatesclassifyasanactivityunder
theobjectivesof"climatechange
mitigation"(CCA)og"climatechangeadaptation"(CCA),asthatisdependentonthepublicdisclosuresbysaidcorporates,andthereforetheresultsarepublishedasatotalforbothobjectives.
1.Creditinstitutionsshalldiscloseinthistemplateinformationonexposuresinthebankingbooktowards
thosesectorscoveredbytheTaxonomy(NACEsectors4levelsofdetail),usingtherelevantNACECodesonthebasisoftheprincipalactivityofthecounterparty.
2.ThesectorbreakdownbyactivityisonlyapplicabletoactivitiescoveredbythedelegatedactsthathavebeenadoptedinIceland.
3.Thebreakdown
bysectorisbasedonISAT2008mappingontoNACEcodes,bytheprincipalactivityofthecounterpartyavailableinpublicrecords,theGroupexpectsthistopossiblychangenextyearasmorecompaniespublishtheirTaxonomydisclosuresin2024.
Grosscarryingamount Grosscarryingamount Grosscarryingamount Grosscarryingamount Grosscarryingamount Gross
carryingamount
Breakdownbysector‐NACE4digitslevel(codeandlabel)
ClimateChangeMitigation(CCM) TOTAL(CCM+CCA)
Non‐Financialcorporates
(SubjecttoNFRD)
SMEsandotherNFCnotsubject
toNFRD
Non‐Financialcorporates(Subject
toNFRD)
ConsolidatedFinancialStatements31December2023 90
Kvikabankihf. AmountsareinISKthousands
3. GARKPIstock
abcdefghijklmnop
Ofwhich
specialised
lending
Ofwhich
transitional
Ofwhich
enabling
Ofwhich
specialised
lending
Ofwhich
transitional
Ofwhich
enabling
Ofwhich
specialised
lending
Ofwhich
transitional
Ofwhich
enabling
1
GAR‐Coveredassetsinbothnumeratorand
denominator
2
Loansandadvances,debtsecuritiesand
equityinstrumentsnotHfTeligibleforGAR
calculation
24.8% 24.8% 10.8%
3 Financialcorporations 0.0% 0.0% 0.6%
4 Creditinstitutions 0.0% 0.0% 0.0%
5 Loansandadvances 0.0% 0.0% 0.0%
6 Debtsecurities,includingUoP 0.0% 0.0% 0.0%
7 Equityinstruments 0.0% 0.0% 0.0%
8 Otherfinancialcorporations 0.0% 0.0% 0.6%
9ofwhichinvestmentfirms 0.0% 0.0% 0.0%
10 Loansandadvances 0.0% 0.0% 0.0%
11 Debtsecurities,includingUoP 0.0% 0.0% 0.0%
12 Equityinstruments 0.0% 0.0% 0.0%
13 ofwhichmanagementcompanies 0.0% 0.0% 0.6%
14 Loans
andadvances 0.0% 0.0% 0.6%
15 Debtsecurities,includingUoP 0.0% 0.0% 0.0%
16 Equityinstruments 0.0% 0.0% 0.0%
17 ofwhichinsuranceundertakings 0.0% 0.0% 0.0%
18 Loansandadvances 0.0% 0.0% 0.0%
19 Debtsecurities,includingUoP 0.0% 0.0% 0.0%
20 Equityinstruments 0.0% 0.0% 0.0%
21 Non‐financialcorporations 100.0% 100.0% 0.0%
22
NFCssubjecttoNFRDdisclosure
obligations
100.0% 100.0% 0.0%
23 Loansandadvances 100.0% 100.0% 0.0%
24 Debtsecurities,includingUoP 0.0% 0.0% 0.0%
25 Equityinstruments 0.0% 0.0% 0.0%
26 Households 27.0% 27.3% 9.7%
27
ofwhichloanscollateralisedby
residentialimmovable
property
100.0% 100.0% 0.6%
28 ofwhichbuildingrenovationloans 0.0% 0.0% 0.0%
29 ofwhichmotorvehicleloans 100.0% 100.0% 2.1%
30 Localgovernmentsfinancing 0.0% 0.0% 0.5%
31
Collateralobtainedbytakingpossession:
residentialandcommercialimmovable
0.0% 0.0% 0.0%
32 Otherlocalgovernmentfinancing 0.0% 0.0% 0.5%
49
TotalGARassets
%(comparedtototalcoveredassetsinthe
denominator)
DisclosurereferencedateT
ClimateChangeMitigation(CCM) ClimateChangeAdaptation(CCA) TOTAL(CCM+CCA)
Proportionoftotalcoveredassetsfundingtaxonomyrelevantsectors
(Taxonomy‐eligible)
Proportionoftotalcoveredassetsfundingtaxonomyrelevant
sectors(Taxonomy‐eligible)
Proportionoftotalcoveredassetsfunding
taxonomyrelevant
sectors(Taxonomy‐eligible)
Proportion
oftotal
assets
covered
Proportionoftotalcoveredassetsfundingtaxonomy
relevantsectors(Taxonomy‐aligned)
Proportionoftotalcoveredassetsfundingtaxonomy
relevantsectors(Taxonomy‐aligned)
Proportionoftotalcoveredassetsfundingtaxonomy
relevantsectors(Taxonomy‐aligned)
ConsolidatedFinancialStatements31December2023 91
Kvikabankihf. AmountsareinISKthousands
4. GARKPIflow
ab c defghi jk l mnop
Ofwhich
specialised
lending
Ofwhich
transitional
Ofwhich
enabling
Ofwhich
specialised
lending
Ofwhich
transitional
Ofwhich
enabling
Ofwhich
specialised
lending
Ofwhich
transitional
Ofwhich
enabling
1
GAR‐Coveredassetsinbothnumeratorand
denominator
2
Loansandadvances,debtsecuritiesand
equityinstrumentsnotHfTeligibleforGAR
calculation
3 Financialcorporations
4 Creditinstitutions
5 Loansandadvances
6 Debtsecurities,includingUoP
7 Equityinstruments
8 Otherfinancialcorporations
9ofwhichinvestmentfirms
10 Loansandadvances
11 Debtsecurities,includingUoP
12 Equityinstruments
13 ofwhichmanagementcompanies
14 Loansandadvances
15 Debtsecurities,includingUoP
16 Equityinstruments
17 of
whichinsuranceundertakings
18 Loansandadvances
19 Debtsecurities,includingUoP
20 Equityinstruments
21 Non‐financialcorporations
22
NFCssubjecttoNFRDdisclosure
obligations
23 Loansandadvances
24 Debtsecurities,includingUoP
25 Equityinstruments
26 Households
27
ofwhichloanscollateralisedby
residentialimmovableproperty
28 ofwhichbuildingrenovationloans
29 ofwhichmotorvehicleloans
30 Localgovernmentsfinancing
31
Collateralobtained
bytakingpossession:
residentialandcommercialimmovable
32 Otherlocalgovernmentfinancing
49
TotalGARassets
Proportionoftotalcoveredassetsfundingtaxonomy
relevantsectors(Taxonomy‐aligned)
Proportionoftotalcoveredassetsfundingtaxonomy
relevantsectors(Taxonomy‐aligned)
%(comparedtoflowoftotaleligibleassets)
DisclosurereferencedateT
ClimateChangeMitigation(CCM) ClimateChangeAdaptation(CCA) TOTAL(CCM+CCA)
Proportionoftotalcoveredassetsfundingtaxonomy
relevantsectors
(Taxonomy‐eligible)
Proportionoftotalcoveredassetsfundingtaxonomyrelevant
sectors(Taxonomy‐eligible)
Proportionoftotalcoveredassetsfundingtaxonomyrelevantsectors
(Taxonomy‐eligible)
Proportion
oftotalnew
assets
covered
Proportionoftotalcoveredassetsfundingtaxonomy
relevantsectors(Taxonomy‐aligned)
ConsolidatedFinancialStatements31December2023 92
Kvikabankihf. AmountsareinISKthousands
5. KPIoff‐balancesheetexposure
s
abcdefghijklmno
Ofwhich
specialised
lending
Ofwhich
transitional
Ofwhich
enabling
Ofwhich
specialised
lending
Ofwhich
transitional
Ofwhich
enabling
Ofwhich
specialised
lending
Ofwhich
transitional
Ofwhich
enabling
1 Financialguarantees(FinGuarKPI)
2 Assetsundermanagement(AuMKPI)
Thistablehasnodatainthefirstyearofreportingasitisreliantonpubliclydiscloseddatafrominvesteecompaniesandcounterparties.
Proportionoftotalcoveredassetsfundingtaxonomy
relevantsectors(Taxonomy‐aligned)
Proportionoftotalcoveredassetsfundingtaxonomy
relevantsectors(Taxonomy‐aligned)
%(comparedtoflowoftotaleligibleassets)
DisclosurereferencedateT
ClimateChangeMitigation(CCM) ClimateChangeAdaptation(CCA) TOTAL(CCM+CCA)
Proportionoftotalcoveredassetsfundingtaxonomyrelevantsectors
(Taxonomy‐eligible)
Proportionoftotalcoveredassetsfundingtaxonomyrelevant
sectors(Taxonomy‐eligible)
Proportionoftotalcoveredassetsfundingtaxonomyrelevant
sectors(Taxonomy‐eligible)
Proportionoftotalcoveredassetsfundingtaxonomy
relevantsectors(Taxonomy‐aligned)
ConsolidatedFinancialStatements31December2023 93
Kvikabankihf. AmountsareinISKthousands
KvikaAssetManagement
Limitationstothereportingfor2023
Turnover‐based:% Turnover‐based:[monetaryamount]
CapEx—based:%CapEx‐based:[monetaryamount]
Coverage:% 87.7% Thevalueinmonetaryamountsofderivatives. 406,707,808
Percentage(%) 0.01% [monetaryamount]
42,109
Fornon‐financialundertakings: 38.0% Fornon‐financialundertakings:[monetaryamount] 154,389,126
Forfinancialundertakings: 22.5% Forfinancialundertakings:[monetaryamount]
91,503,426
Fornon‐financialundertakings: 0.9% Fornon‐financialundertakings:[monetaryamount] 3,499,990
Forfinancialundertakings: 5.2% For
financialundertakings:[monetaryamount]
20,964,297
Fornon‐financialundertakings: 13.8% Fornon‐financialundertakings:[monetaryamount] 56,040,187
Forfinancialundertakings: 12.2% Forfinancialundertakings:[monetaryamount]
49,713,770
Percentage(%) 7.5% [monetaryamount]
30,554,903
Percentage(%) 55.9% [monetaryamount]
227,372,725
Percentage(%) [monetaryamount]
Theweightedaveragevalueofalltheinvestmentsthataredirectedatfunding,orare
associatedwithtaxonomy‐alignedeconomic
activitiesrelativetothevalueoftotal
assetscoveredbytheKPI,withfollowingweightsforinvestmentsinundertakingsper
below:
Theweightedaveragevalueofalltheinvestmentsthataredirectedatfunding,or
areassociatedwithtaxonomy‐alignedeconomicactivities,withfollowingweights
forinvestmentsinundertakingsper
below:
Additional,complementarydisclosures:breakdownofdenominatoroftheKPI
ThepercentageofderivativesrelativetototalassetscoveredbytheKPI. Thevalueinmonetaryamountsofderivatives.
Kvika Asset Management publishes the following information pursuant to Article 8 of The EU Taxonomy (Regulation (EU) 2020/852) in a template from
Annex IV and together with information from Annex XI covering asset managers pursuant to Commission Delegated Regulation (EU) 2021/2178 (hereinafter
the"DelegatedRegulation")alongsideitsannualaccountsfor2023.
ThecalculationofkeyfiguresisbasedonthedatausedinKvikaAssetManagement’sfinancialstatementfor2023.
The EU Taxonomy regulation was implemented in phases in Europe starting in 2022 to ensure data availability. However, as it was implemented differently
in Iceland with all companies in scope disclosing at the same time there will be limitations in the results presented as it affects the information available to
KvikaAssetManagement.
According to the Delegated Regulation, asset managers are to disclose the proportion of investment in Taxonomy‐aligned economic activities (also known
as environmentally sustainable activities) out of the total value of all investments managed by them. This ratio is based on key performance indicators of
investees (turnover and capex), which they publish according to the EU Taxonomy for the first time in Iceland for 2023. Since Kvika Asset Management
needs information from investees, much of the template is published without information and it is not possible to calculate the ratio of investments in
environmentally sustainable economic activities this year. The template only contains information that is not subject to disclosures by investees. Due to the
recent implementation of the disclosure requirements, lack of implementation of various European acts into Icelandic law and lack of disclosure fromlegal
entitiesinscopeoftheregulationtheinformationis
limitedinthefirstyearofreporting.
ANNEXIV
TEMPLATEFORTHEKPIOFASSETMANAGERS
StandardtemplateforthedisclosurerequiredunderArticle8ofRegulation(EU)2020/852(assetmanagers)
Thevalueofalltheinvestmentsthatarefundingeconomicactivitiesthatarenot
taxonomy‐eligiblerelativetothevalueoftotalassetscoveredbytheKPI:
Valueof
alltheinvestmentsthatarefundingeconomicactivitiesthatarenot
taxonomy‐eligible:
Thevalueofalltheinvestmentsthatarefundingtaxonomy‐eligibleeconomic
activities,butnottaxonomy‐alignedrelativetothevalueoftotalassetscoveredby
theKPI:
ValueofalltheinvestmentsthatarefundingTaxonomyeligible
economic
activities,butnottaxonomyaligned:
Theproportionofexposurestofinancialandnon‐financialundertakingssubjectto
Articles19aand29aofDirective2013/34/EUovertotalassetscoveredbytheKPI:
Valueofexposurestofinancialandnon‐financialundertakingssubjectto
Articles19aand29aofDirective2013/34/EU:
Theproportion
ofexposurestoothercounterpartiesovertotalassetscoveredbythe
KPI:
Valueofexposurestoothercounterparties:
ThepercentageofassetscoveredbytheKPIrelativetototalinvestments(totalAuM).
Excludinginvestmentsinsovereignentities.
ThemonetaryvalueofassetscoveredbytheKPI.
Excludinginvestmentsinsovereignentities.
Theproportion
ofexposurestofinancialandnon‐financialundertakingsfromnon‐
EUcountriesnotsubjecttoArticles19aand29aofDirective2013/34/EUovertotal
assetscoveredbytheKPI:
Valueofexposurestofinancialandnon‐financialundertakingsfromnon‐EU
countriesnotsubjecttoArticles19aand29aofDirective
2013/34/EU:
TheproportionofexposurestoEUfinancialandnon‐financialundertakingsnot
subjecttoArticles19aand29aofDirective2013/34/EUovertotalassetscoveredby
theKPI:
ValueofexposurestoEUfinancialandnon‐financialundertakingsnotsubjectto
Articles19aand29aofDirective2013/34/EU:
ConsolidatedFinancialStatements31December2023 94
Kvikabankihf. AmountsareinISKthousands
KvikaAssetManagement
Kvika Asset Management publishes the following information pursuant to Article 8 of The EU Taxonomy (Regulation (EU) 2020/852) in a template from
Turnover‐based:% Turnover‐based:[monetaryamount]
CapEx—based:%CapEx‐based:[monetaryamount]
Forfinancialundertakings: Forfinancialundertakings:
Turnover‐based:% Turnover‐based:[monetaryamount]
CapEx—based:%CapEx‐based:[monetaryamount]
Turnover‐based:% Turnover‐based:[monetaryamount]
CapEx—based:%CapEx‐based:[monetaryamount]
Turnover:% Transitionalactivities:A%(Turnover;CapEx)
Capex:% Enablingactivities:B%(Turnover;CapEx)
Turnover:% Transitionalactivities:A%(Turnover;
CapEx)
Capex:% Enablingactivities:B%(Turnover;CapEx)
Turnover:% Transitionalactivities:A%(Turnover;CapEx)
Capex:% Enablingactivities:B%(Turnover;CapEx)
Turnover:% Transitionalactivities:A%(Turnover;CapEx)
Capex:% Enablingactivities:B%(Turnover;CapEx)
Turnover:% Transitionalactivities:A%(Turnover;CapEx)
Capex:% Enablingactivities:B%(Turnover;CapEx)
Turnover:% Transitionalactivities:A%(Turnover;CapEx)
Capex:% Enablingactivities:B%(Turnover;CapEx)
Explanatory
notes
'taxonomy‐alignedactivities'
'nottaxonomy‐aligned'
'taxonomy‐eligibleactivities'
For credit institutions that are not required to disclose quantitative information for
trading exposures, qualitative information on the alignment of trading portfolios with
Regulation (EU) 2020/852, including overall composition, trends observed, objectives
andpolicy;
Doesn'tapplytoassetmanagers.
economicactivitiesthatdonotqualifyasenvironmentallysustainableunderEU
Taxonomyi.e.Donotfulfilthecriteriasetoutinthedelegatedacts
activitythathasacorrespondingcriteriaintheEUTaxonomydelegated
actstobe
assessedagainst
ANNEXXI
QUALITATIVEDISCLOSURESFORASSETMANAGERS,CREDITINSTITUTIONS,INVESTMENTFIRMSANDINSURANCEANDREINSURANCEUNDERTAKINGS
ThedisclosureofquantitativeKPIsshallbeaccompaniedbythefollowingqualitativeinformationtosupportthefinancialundertakings’explanationsandmarkets’
understandingoftheseKPIs:
Contextual information in support of the quantitative indicators including the scope of
assetsandactivitiescoveredbytheKPIs,informationondatasourcesandlimitation;
The calculation of key indicators uses total assets under management (AuM),
excluding exposures to central governments, central banks and supranational
issuers. Investments in companies which are not obliged to disclose non‐financial
informationundertheActonAnnualAccountsshouldalsobeexcluded.
As this is the first year of implementation, there is limited access to data to
perform calculations on the key indicator. The volume of investment in taxonomy
aligned economic activities cannot be disclosed, as undertakings that are obliged
to assess and publish such information according the EU Taxonomy, i.e. the
extent to which their economic activities are environmentally sustainable, will
publishthisinformationin2024.
Explanations of the nature and objectives of Taxonomy‐aligned economic activities
and the evolution of the Taxonomy‐aligned economic activities over time, starting
from the second year of implementation, distinguishing between business‐related and
methodologicalanddata‐relatedelements;
Notapplicableinthefirstyearofreporting(financialyear2023).
Description of the compliance with Regulation (EU) 2020/852 in the financial
undertaking’s business strategy, product design processes and engagement with
clientsandcounterparties;
Kvika Asset Management expects to increasingly consider the EU Taxonomy e.g.
in product development as well as in communication with customers, additionally
there has been increased education to employees on the topic. When disclosure
based on the regulatory framework increases, the company will be able to
increaseitsdisclosuresinlinewiththeregulation.
5)Pollutionpreventionandcontrol
6)Theprotectionandrestorationofbiodiversityand
ecosystems
economicactivities
thatqualifyasenvironmentallysustainableunderEU
Taxonomy
1)Climatechangemitigation
2)Climatechangeadaptation
3)Thesustainableuseandprotectionofwaterandmarine
resources
4)Thetransitiontoacirculareconomy
Theproportionoftaxonomy‐alignedexposurestoothercounterpartiesinovertotal
assetscoveredbytheKPI:
Valueoftaxonomy
‐alignedexposurestoothercounterparties:
BreakdownofthenumeratoroftheKPIperenvironmentalobjective
Taxonomy‐alignedactivities–:
ANNEXIV(cont.)
Additional,complementarydisclosures:breakdownofnumeratoroftheKPI
TheproportionofTaxonomy‐alignedexposurestofinancialandnon‐financial
undertakingssubjecttoArticles19aand29aofDirective2013/34/EUover
total
assetscoveredbytheKPI:
ValueofTaxonomy‐alignedexposurestofinancialandnon‐financial
undertakingssubjecttoArticles19aand29aofDirective2013/34/EU:
Fornon‐financialundertakings: Fornon‐financialundertakings:
ConsolidatedFinancialStatements31December2023 95
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